The decentralized finance (DeFi) platform Sky, formerly known as Maker, has announced its plan to offboard Wrapped Bitcoin (WBTC) as collateral within its ecosystem. The move comes amidst concerns over WBTC’s alleged connection to controversial crypto figure Justin Sun.
In a Sept. 12 post on the protocol’s governance forum, Sky’s team outlined the decision to remove WBTC variants from SparkLend, its decentralized non-custodial liquidity protocol. The offboarding process is set to begin on Sept. 26, following a series of executive votes. SparkLend users holding WBTC were advised to close their positions and liquidate legacy vaults to avoid potential liquidation.
The proposal comes in response to recent changes in WBTC ownership, which the Sky team claims are tied to Sun or his affiliates. According to risk analyst and DAO delegate “monet-supply,” control of WBTC may be shifting to BitGlobal, a venture allegedly under the influence of Justin Sun, despite its ownership being concealed through shell companies.
Growing Counterparty Risks
The Sky team raised concerns about the counterparty risks posed by WBTC’s connection to Sun, citing the negative track record of other Sun-affiliated products. Sky’s forum post emphasized that such risks could undermine the platform’s stability and security, particularly as Sun-affiliated products have been associated with regulatory scrutiny and operational issues.
Monet-supply specifically pointed to an August partnership between crypto exchange BitGlobal and BitGo, the custodian managing the Bitcoin backing WBTC. This deal has intensified concerns about WBTC’s future under BitGlobal’s potential control, with monet-supply stating, “We will target to begin derisking collateral exposure by this point in time,” referencing the upcoming shift expected by October 8.
Currently, SparkLend holds around $73 million in debt collateralized by WBTC, while legacy vaults on Sky contain $127 million in collateralized debt. Sky’s offboarding process aims to mitigate the risk to users and the broader ecosystem as control over WBTC appears to shift.
Exploring Alternatives to WBTC
Sky’s offboarding of WBTC will leave a significant gap in its collateral offerings. To address this, several alternative Bitcoin-denominated assets are being considered. Sky is exploring centralized and decentralized tokenized Bitcoin products like Coinbase’s cbBTC and Threshold’s tBTC, both of which could serve as potential replacements for WBTC within the ecosystem.
The team is also investigating the use of Bitcoin staking and restaking products, which could provide additional options for users seeking to maintain Bitcoin exposure within the DeFi space.
WBTC’s Declining Market Position
WBTC, which was once a favored tokenized Bitcoin product on Ethereum, has seen a sharp decline in recent months. Currently, there are around 152,958 WBTC tokens on Ethereum, with a market cap of approximately $8.8 billion. This represents a significant drop of 44% from its peak market cap of $15.8 billion in November 2021.
As Sky moves to distance itself from WBTC, the decision underscores growing concerns within the DeFi community over the influence of high-risk players like Justin Sun. With the offboarding set to begin soon, the DeFi sector will be watching closely to see how alternative Bitcoin products perform in the wake of WBTC’s removal.
Sky’s proactive approach to managing risk may serve as a critical step in preserving its platform’s integrity, while the broader DeFi space grapples with the implications of WBTC’s uncertain future.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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