Decentralized finance pioneer Sky, previously known as Maker, is revisiting its decision to offboard Wrapped Bitcoin (WBTC) as collateral in its lending protocol.
The reconsideration comes after a new recommendation from its key adviser, BA Labs, following discussions on the Sky governance forum.
On September 24, BA Labs advised halting the WBTC offboarding process.
BitGo Co-Founder Addresses Community Concerns
The recommendation followed an extensive conversation with BitGo co-founder Mike Belshe, who addressed the community’s concerns regarding changes in WBTC’s management and custody.
Belshe clarified BitGo’s commitments, including the control of signing keys and a pledge to provide a minimum of 60 days’ notice before any significant changes.
The 60-day notification standard, according to Belshe, was created by BitGo to ensure transparency and has been consistently adhered to.
He highlighted that these practices aim to maintain the trust and security of WBTC as a decentralized financial instrument.
In light of BitGo’s assurances, BA Labs expressed a more favorable stance toward retaining WBTC as collateral.
BA Labs team member and DAO delegate, known by the pseudonym “monet-supply,” stated that with the current commitments from BitGo and a decrease in WBTC’s exposure to $170 million in total borrowing, the collateral risk has reached a more manageable level.
“While we continue to have concerns about BitGlobal serving as a signer for WBTC, we find it is no longer at a level requiring immediate collateral offboarding,” Monet-supply added.
“Therefore, we recommend indefinitely pausing the collateral offboarding procedures.”
The new recommendation will be put to an executive vote on October 3, potentially reversing a prior decision made on September 19.
The earlier governance vote, which passed with 88% approval, proposed offboarding WBTC collateral through a five-step process beginning in October.
The proposal emerged after BitGo transferred WBTC custody to BitGlobal, a move that sparked significant concerns among the Sky community.
Belshe Claims Coinbase’s cbBTC Introduces More Risk
In response to the community’s concerns, Belshe expressed frustration with the comparison between WBTC and Coinbase’s cbBTC, noting that the latter lacks proof-of-reserves (POR) and could introduce more risk.
“You’re proposing to move all the current WBTC, POR-mitigated risk to CB, when they don’t have POR and have said they won’t ever do it,” Belshe argued.
BA Labs also highlighted the importance of proof of reserves in managing WBTC risks and suggested that Sky compare the potential risks of WBTC against Coinbase’s cbBTC.
Additionally, BA Labs recommended specific adjustments to Sky’s lending parameters, including lowering liquidation penalties, adjusting liquidation ratios, and reducing the liquidation protocol fee for its Legacy Vaults and SparkLend.
The main concern driving this proposal is the involvement of Justin Sun, the founder of Tron.
Last month, BA Labs argued that Sun’s involvement in the new WBTC management structure poses a significant risk to MakerDAO.
At the time, BA Labs suggested that MakerDAO and Spark should consider fully offboarding WBTC unless BitGo and its partners can convincingly demonstrate that the current collateral arrangements remain safe.
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