On Friday, On Friday, BitGo, the current custodian for Wrapped Bitcoin (WBTC), announced that they were transitioning to the “world’s first multi-jurisdictional and multi-institutional custody via a unique partnership and joint-venture with BiT Global.”
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Wrapped BTC (WBTC) is the largest Bitcoin token with 1:1 backing on Ethereum and widely used in almost every major DeFi application as a collateral asset.
While these types of transfers usually draw little attention, BitGo sparked controversy when they included that the move was “a strategic partnership between BitGo, Justin Sun, and the Tron ecosystem.”
Justin is a lightning rod in crypto and this move ruffled a lot of feathers.
The new transitional move exploded across Twitter when Monet Supply of BA Labs who fired the first warning shots on August 11, when they posted on the MakerDAO forum proposing to close all new WBTC debt and prevent new borrowing against WBTC in an upcoming executive vote.
Monet argued that Justin Sun's involvement would potentially threaten the operational processes and transparency of WBTC, in a similar vein to his takeover of TUSD. He agrued that post TUSD acquisition, several worrying events took place, including the resignation of the previous management team, suspension of real time proof of reserves, and several significant depegs caused by interruptions in redemption service. He also said that several other of Sun's projects showed “worrying signs of possible misappropriation, such as the substitution of Huobi’s USDT reserves with stUSDT, a Sun controlled RWA project that purports to hold a reserve of US treasury bills but has not provided clear audits or evidence that the backing exists.” Ultimately he believed that Sun's involvement “presents an unacceptable level of risk” and so WBTC debt should be frozen.
BitGo's CEO Mike Belshe replied to the thread soon after, writing that “This seems to be more a reaction to the Justin Sun name than to facts.” He further wrote that
“The underlying security is the same as what you have today, with https://wbtc.network continuing to provide near-real-time proof of reserves. If that ever changes, you’ll know in real time. Further, BitGo is still co-signing all transactions using the same technology it always had; BitGo simply will not sign a transaction that does not have the corresponding mint (BTC deposit) or burn (token ownership).”
Regardless of whether the custodians are the same, secured with the same techonology, the new structure is a material change and potentially introduces new risks.
Weirdly on Ethereum, there is only one wrapped version of Bitcoin…. WBTC. All other competitors have failed to capture any market share at all.
There are no alternatives. This is what makes the shift so worrisome.
GFX labs said this move was “extreme” and brought up the fact that other centralized issuers like Ethena and Ether.fi had not undergone the same level of scrutiny.
Later in the thread, Monet Supply asked for a full detailed summary of the deal and legal structuring questions.
Belshe replied that he would be happy to provide this info, but only to Maker’s legal representative under an NDA.
It’s unclear if Maker took up the offer, but Leviathan spoke with an industry insider who told us “[BA Labs & Monet Supply are] technically just an advisor, but it’s their job and can’t think of a time they’ve ever not had their recommendations accepted” So there is a high likelyhood that new DAI minting will be frozen and WBTC eventually offboarded.
