Sky Reconsiders Wrapped Bitcoin Collateral

Formerly known as Maker, Sky, a pioneer in decentralized finance, is reconsidering its decision to exclude Wrapped Bitcoin (WBTC) as collateral in its lending protocol.

The reconsideration results from a new recommendation from BA Labs, its primary adviser, issued in response to the Sky governance forum discussions.

BA Labs recommended that the WBTC offboarding procedure be suspended on September 24.

The co-founder of BitGo addresses community concerns

Following an extensive discussion with Mike Belshe, co-founder of BitGo, the recommendation was made in response to the community’s apprehensions about the administration and custody of WBTC.

Belshe elucidated BitGo’s obligations, which encompassed the management of signing keys and a commitment to furnish a minimum of 60 days’ notice before any substantial modifications.

The 60-day notification standard, which BitGo established to guarantee transparency, has been consistently upheld, according to Belshe.

He emphasized that the purpose of these practices is to preserve the trust and security of WBTC as a decentralized financial instrument.

BA Labs expressed a more favorable posture toward retaining WBTC as collateral in light of BitGo’s assurances.

According to the pseudonym “money-supply,” a BA Labs team member and DAO delegate, the collateral risk has been reduced to a more manageable level. This is due to the current commitments from BitGo and a reduction in WBTC’s exposure to $170 million in total borrowing.

“We continue to harbor reservations regarding BitGlobal’s status as a signatory for WBTC; however, we have determined that it is no longer necessary to implement immediate collateral offboarding,” Monet-supply stated.

“Consequently, we suggest that the collateral offboarding procedures be suspended indefinitely.”

The new recommendation will be submitted to an executive vote on October 3, which has the potential to reverse a previous decision made on September 19.

The previous governance vote, approved by 88%, proposed a five-step procedure to offboard WBTC collateral that would commence in October.

The Sky community expressed substantial apprehensions regarding BitGo’s transmission of WBTC custody to BitGlobal, which prompted the proposal.

Belshe alleges that Coinbase’s cbBTC poses an increased risk

Belshe expressed frustration with comparing WBTC and Coinbase’s cbBTC in response to the community’s concerns. He noted that the latter lacks proof-of-reserves (POR) and could introduce additional risk.

Belshe argued, “You suggest that all of the current WBTC, POR-mitigated risk be transferred to CB, even though they do not have POR and have stated that they will never do so.”

BA Labs also emphasized the significance of proof of reserves in managing WBTC risks and recommended that Sky compare the potential risks of WBTC with Coinbase’s cbBTC.

Furthermore, BA Labs suggested that Sky’s lending parameters be explicitly modified by reducing the liquidation protocol fee, adjusting liquidation ratios, and decreasing liquidation penalties for Legacy Vaults and SparkLend.

The involvement of Justin Sun, the founder of Tron, is the primary concern that motivates this proposal…

BA Labs contended last month that MakerDAO is at a substantial risk due to Sun’s participation in the new WBTC management structure.

BA Labs recommended that MakerDAO and Spark fully offboard WBTC unless BitGo and its partners can convincingly demonstrate that the current collateral arrangements remain secure at the time.