Threshold, a decentralized finance (DeFi) protocol, has put forth a proposal for a merger between its Bitcoin wrapper token, tBTC, and Wrapped Bitcoin (WBTC) in response to concerns over a potential takeover by Justin Sun. BitGo, the custodian managing the Bitcoin reserves backing WBTC, recently announced plans for a partnership with BiT Global, a Hong Kong-based exchange, which would involve partial control of the multisignature wallet holding the Bitcoin reserves for WBTC. This move has raised alarms within the community due to Sun’s controversial reputation, sparking fears of collateral misappropriation. In light of this, Threshold’s proposal suggests replacing WBTC’s centralized custody system with a decentralized DAO model to ensure more secure and transparent management.
WBTC is currently the most popular Bitcoin wrapper in the market, with a market capitalization of around $9 billion. These Bitcoin wrappers, such as WBTC, are ERC-20 tokens that represent Bitcoin on the Ethereum blockchain, enabling the usage of BTC in DeFi applications. Under Threshold’s plan, the DAO would take over the minting and redeeming processes of WBTC, shifting control away from existing merchants who currently have privileges in the system. Additionally, Threshold would discontinue its own tBTC wrapper, offering tBTC holders the choice to redeem their tokens 1:1 for WBTC or native BTC. This move aims to centralize control of WBTC within the Threshold DAO to enhance security and transparency.
MakerDAO, a prominent DeFi project, is contemplating whether to restrict the minting of its DAI stablecoin using WBTC as collateral in response to the restructuring plans for WBTC. BA Labs, a research group, raised concerns about Sun’s involvement in the new WBTC management structure, citing past issues with TrueUSD, a stablecoin linked to Sun, which faced operational and transparency challenges after being acquired by a Sun-affiliated entity. The group urged MakerDAO and Spark to consider fully offboarding WBTC unless BitGo and partners can demonstrate the safety of the current collateral arrangements. Currently, a significant portion of DAI’s token supply and MakerDAO’s vaults are backed by WBTC, making it crucial for these protocols to assess the risks associated with Sun’s involvement in WBTC.
At present, MakerDAO’s vaults hold $500 million worth of WBTC, and around $289.3 million worth of the token is deposited in SparkLend, accounting for a considerable portion of the protocol’s total value locked. Sun has responded to the concerns regarding his role in WBTC management, clarifying on social media that his involvement is strategic and that he does not possess the private keys to WBTC reserves. The community remains cautious about the potential risks associated with Sun’s participation in WBTC and is closely monitoring the situation as Threshold’s proposal for a merger with WBTC aims to centralize control within a decentralized autonomous organization.
Overall, the proposed merger between tBTC and WBTC by the Threshold DeFi protocol underscores the importance of transparent and secure management of decentralized financial assets. The concerns raised over a potential takeover by Justin Sun have led to calls for a shift towards a decentralized custody model for WBTC to ensure the protection of collateral and prevent any misappropriation. MakerDAO’s evaluation of the use of WBTC as collateral for DAI reflects a broader industry-wide scrutiny of the risks associated with centralized control within decentralized protocols. As the DeFi ecosystem continues to evolve, initiatives like Threshold’s proposal highlight the ongoing efforts to enhance governance and security in the space.
