25/09/24

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Sky, a pioneer in decentralized finance (DeFi) formerly known as Maker, is re-evaluating its earlier decision to phase out Wrapped Bitcoin (WBTC) as collateral for its lending platform. This reconsideration comes after receiving new guidance from BA Labs, one of its primary advisors, following an extensive discussion on the governance forum led by BitGo co-founder Mike Belshe.

On September 24, BA Labs advised to put the offboarding initiative on hold, taking into account BitGo’s pledge to offer clear communication regarding management and custody changes related to WBTC. They emphasized a commitment to provide at least 60 days of advance notice prior to any modifications concerning the entities responsible for controlling the WBTC signing keys. Belshe underlined that this notification standard has been a long-standing practice at BitGo.

With WBTC exposure now at $170 million in total borrowing, concerns previously held about collateral risks are diminishing. A member of BA Labs pointed out that while there are still apprehensions regarding BitGlobal’s role as a signer for WBTC, the urgency for immediate collateral offboarding is no longer prevalent. As a result, they have recommended an indefinite pause on the offboarding process.

An executive vote on the new recommendations is scheduled for October 3. Meanwhile, SparkLend’s exposure to WBTC has decreased to $61 million.

Previously, BitGo was the only custodian for the Bitcoin that backs WBTC, but in August, the company formed a partnership with BitGlobal, led by Justin Sun, to shift that custody. This transition raised alarms within the Sky community and resulted in a governance vote on September 19, where a majority supported the initial plan to remove WBTC as collateral.

Amid this scrutiny, Belshe expressed his discontent regarding the perception of risk related to WBTC compared to other alternatives. He pointed out that moving from WBTC to a centralized solution with less transparency could potentially introduce new risks instead of mitigating them.

In broader discussions, BA Labs addressed the merits and constraints of proof of reserves for WBTC, suggesting that a comparative analysis of risks between WBTC and other stablecoin options is essential for secure decision-making. Additionally, adjustments to liquidation penalties, liquidation ratios, and fees for Sky’s Legacy Vaults and SparkLend were also proposed.