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Sky considers removing Wrapped Bitcoin over Justin Sun concerns

Sky considers removing Wrapped Bitcoin over Justin Sun concerns

GrafaGrafa2024/09/13 07:20
By:Isaac Francis

Sky, previously known as Maker, has proposed removing Wrapped Bitcoin (CRYPTO:WBTC) as collateral within its decentralised finance ecosystem.

The decision is driven by concerns over recent changes in the ownership and control of WBTC, which Sky claims may involve Justin Sun or his affiliates.

This move aims to mitigate potential counterparty risks associated with entities linked to Sun.

On September 12, Sky’s team posted on its governance forum announcing its plan to offboard WBTC from SparkLend, its decentralised non-custodial liquidity protocol.

The offboarding process is set to begin on September 26 and will occur in stages, requiring multiple executive votes.

Sky urged users to close their WBTC Legacy Vaults and WBTC positions on SparkLend to avoid liquidation during the process.

Currently, SparkLend has $73 million in debt collateralised against WBTC, while legacy vaults hold $127 million in collateralised debts.

Sky's decision is based on the "significant counterparty risks" identified in its assessment of past records associated with Sun-affiliated products.

The proposal highlights concerns over Justin Sun's potential involvement in BitGlobal, formerly known as Bithumb, and its recent partnership with BitGo, the custodian managing the Bitcoin (CRYPTO:BTC) backing WBTC.

Risk analyst and DAO delegate "monet-supply" stated, "It is highly likely that Justin Sun or affiliates control BitGlobal, with ownership concealed through shell companies and nominee directors."

"Given evidence of concealment and concerns about the validity of previous disclosures for Sun-affiliated entities and products, we find that legal due diligence would not provide an adequate level of assurance," added monet-supply.

Control of WBTC is expected to be transferred to a new venture led by BitGlobal as early as October 8, 2024.

Sky aims to start reducing collateral exposure before this date.

To address the potential gap left by WBTC's removal, Sky is exploring alternative Bitcoin-denominated assets.

Suggestions include using centralised and decentralised tokenised Bitcoin products like Coinbase’s cbBTC and Threshold’s tBTC.

The team is also considering Bitcoin staking and restaking products as possible replacements.

Currently, there are approximately 152,958 wrapped Bitcoins on Ethereum (CRYPTO:ETH) with a market cap of around $8.8 billion, which is down 44% from its peak of $15.8 billion in November 2021.

At press time, the Wrapped Bitcoin (WBTC) price was $57,867.34.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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