The community is alarmed about Justin Sun’s involvement.
In order to avert a possible takeover by Justin Sun, the decentralized finance (DeFi) protocol Threshold has suggested merging its Bitcoin wrapper token, tBTC, with Wrapped Bitcoin (WBTC).
The proposal, introduced on August 29, aims to safeguard WBTC following concerns over a possible shift in control of the widely used Bitcoin wrapper.
The worries are related to a statement made recently by BitGo, the custodian of the Bitcoin reserves that support WBTC.
Justin Sun Involvement Raises Concerns
BitGo announced plans to form a collaboration with Hong Kong-based cryptocurrency exchange BiT Global on August 9.
The goal of the collaboration is to expand WBTC’s influence outside of the US.
But it also entails BiT Global assuming some degree of control over the multisignature wallet containing WBTC’s Bitcoin reserves.
There are concerns in the community about the possible theft of assets related to projects that Justin Sun, a controversial figure in the cryptocurrency space, may be involved in.
In response, Threshold’s proposal proposes to substitute Threshold’s decentralized custody and permissionless mint/redeem mechanism for WBTC’s current centralized custody and merchant-based minting and burning model.
With this modification, WBTC would essentially be under the authority of the Threshold decentralized autonomous organization (DAO), which presents itself as a more transparent and safe management model.
I'm not a member of the DAO/holder of T tokens, but I support @TheTNetwork efforts to decentralize WBTC and bring the associated bitcoin into a trustless two way bridgeable version via tBTC.
— Coffee ☕️🍌 (@coffeexcoin) August 29, 2024
The ecosystem deserves better than Justin Sun as custodian.https://t.co/EDyyhfL67A
Based on CoinMarketCap, WBTC is the most widely used Bitcoin wrapper, with a market capitalization of about $9 billion.
WBTC and other bitcoin wrappers are ERC-20 tokens that function as Ethereum blockchain equivalents of bitcoin, enabling the use of bitcoin in DeFi applications.
In Threshold’s proposal, current merchants would lose their privileges and the DAO would take complete control over WBTC’s minting and redeeming procedures.
Furthermore, Threshold would discontinue its own tBTC wrapper and allow holders of tBTC to exchange their tokens 1:1 for native BTC or WBTC.
MakerDAO Considers Restricting DAI Minting Against WBTC
In light of the restructuring plans, MakerDAO is considering whether to stop minting its DAI stablecoin and use WBTC as collateral.
BA Labs cited earlier problems with TrueUSD, a stablecoin associated with Sun that they assert had operational and transparency issues following its sale to a Sun-affiliated entity.
These problems included volatile prices, interrupted redemption services, and the suspension of real-time proof of reserves.
MakerDAO is seriously at risk from Sun’s participation in the new WBTC management structure, according to BA Labs.
It recommended that until BitGo and its partners can provide solid proof that the current collateral arrangements are still secure, MakerDAO and Spark should think about completely offboarding WBTC.
Approximately 10% of the 5.2 billion DAI token supply is currently backed by WBTC, with $500 million worth of the token stored in MakerDAO’s vaults.
Furthermore, $289.3 million in WBTC is deposited in SparkLend, making up 7% of the $4.1 billion in total value locked in the protocol.
Concerns regarding his involvement have been allayed, however, by Justin Sun, who has clarified on social media that he does not possess the private keys to the WBTC reserves and that his involvement is strategic.