Decentralised finance (DeFi) pioneer Sky, formerly known as Maker, has made a significant move in the world of digital lending and borrowing. Following a community governance vote, the platform has confirmed it will offload its exposure to wrapped Bitcoin (WBTC). This decision is the result of ongoing concerns about control and risk associated with WBTC, as well as a push for safer alternatives.
The vote, which took place over three days and ended on 19th September, saw 88% of the Sky community supporting the proposal to remove WBTC from the protocol. A total of 95,826 MKR tokens were pledged in favour of the decision, while 11.83% of participants chose to abstain. Notably, no votes were cast against the proposal, although only 13 MKR whales participated in the decision-making process. This suggests that while the move has broad support, the voting power remains concentrated among a relatively small group of token holders.
Now that the decision has been ratified, Sky is preparing to offload its WBTC holdings in multiple phases. The process will begin on 3rd October, with the final phase slated for 28th November. The gradual approach ensures that the platform can manage the transition smoothly, without causing significant disruptions to users or the DeFi ecosystem.
At present, Sky’s liquidity protocol, SparkLend, holds around $61.38 million in WBTC-backed collateralised debts. This makes WBTC a substantial part of the platform’s lending and borrowing operations, and its removal marks a major shift in how Sky manages its collateral. The decision also reflects a growing trend in the DeFi space, where concerns over counterparty risk and control are driving platforms to reassess their reliance on specific digital assets.
The decision to remove WBTC from Sky’s collateral options was not made lightly. BA Labs, an advisor to the DeFi protocol, first raised concerns about WBTC back in August. These concerns were largely driven by changes in the ownership and control of WBTC, specifically relating to its custodian, BitGo, and a partnership involving Justin Sun, the founder of Tron.
On 12th September, the Sky team issued a proposal to offboard WBTC variants from SparkLend and Legacy Vaults. In their proposal, they cited “recent changes in WBTC ownership and control, likely involving Justin Sun or affiliates,” as a major reason for the move. The team pointed to “significant counterparty risks based on past track records with other Sun-affiliated products” as a justification for their decision. This suggests that Sky is taking a cautious approach to its collateral management, prioritising the security and stability of the platform over the convenience of maintaining WBTC as a collateral option.
The concerns were heightened in August when BitGo, the custodian holding the Bitcoin that backs WBTC, entered into a partnership with BitGlobal, an entity affiliated with Justin Sun. This partnership raised alarm bells within the DeFi community, as Sun’s involvement in various projects has sometimes been viewed with scepticism due to his controversial track record.
Amid the concerns about WBTC, Justin Sun has been quick to defend the asset. On 13th September, he took to social media to reassure users that “WBTC, USDT, and Tron have nothing to do with any Chinese regulations.” This statement came in response to criticism of Coinbase’s recently launched wrapped Bitcoin variant, cbBTC. Sun’s defence of WBTC suggests that he remains confident in the asset’s stability and utility, despite the concerns raised by Sky and others in the DeFi space.
However, for Sky, the risks associated with WBTC’s current custodial arrangements appear to outweigh any potential benefits. By moving away from WBTC, the platform is aiming to reduce its exposure to counterparty risk and ensure that its collateral remains as secure as possible. This cautious approach is in line with the broader DeFi trend towards greater transparency and risk management.
With the decision to offload WBTC now confirmed, Sky is already exploring alternative forms of wrapped Bitcoin to use as collateral. According to a proposal issued earlier in September, the platform is considering options such as Coinbase’s cbBTC and Threshold’s tBTC. Both of these assets offer similar functionality to WBTC, allowing users to leverage Bitcoin within the DeFi ecosystem, but with different custodial and governance structures.
cbBTC, for example, is a wrapped Bitcoin variant developed by Coinbase, one of the most reputable and trusted names in the cryptocurrency space. Its introduction has been seen as a direct competitor to WBTC, offering users a potentially safer and more transparent alternative. Threshold’s tBTC, on the other hand, uses a decentralised approach to custody, with no single entity controlling the Bitcoin backing the asset. This makes it an attractive option for those who are wary of centralised custodians and the risks they can pose.
For Sky, the decision to move away from WBTC represents a major shift in strategy. Wrapped Bitcoin has been a key component of the platform’s lending and borrowing operations, and its removal will require a significant adjustment. However, the move also highlights the platform’s commitment to maintaining the highest standards of security and risk management. By exploring alternative collateral options, Sky is positioning itself to continue offering users a safe and reliable DeFi experience, even as the landscape of digital assets continues to evolve.
Sky’s decision to offload WBTC could have far-reaching implications for the DeFi space as a whole. As one of the pioneers of decentralised lending and borrowing, Sky’s actions are closely watched by other platforms and participants in the ecosystem. The removal of WBTC from such a high-profile protocol may prompt other DeFi platforms to reassess their reliance on wrapped Bitcoin and consider alternative options.
At the same time, the move reflects a growing awareness of the risks associated with centralised custodians in the DeFi world. While WBTC has played a crucial role in bringing Bitcoin liquidity to the decentralised space, its reliance on a centralised custodian like BitGo has always been a point of concern for some users. Sky’s decision to move away from WBTC may encourage other DeFi platforms to seek out more decentralised alternatives, such as tBTC, in order to mitigate counterparty risk and increase transparency.
For users, the removal of WBTC from Sky’s platform may prompt some to rethink their approach to collateral in the DeFi space. While WBTC has long been a popular choice due to its liquidity and accessibility, the growing availability of alternatives like cbBTC and tBTC offers users more options when it comes to securing their loans. This increased competition among wrapped Bitcoin variants could lead to greater innovation and improvement in the space, benefiting users in the long run.
Sky’s decision to offload WBTC is a significant moment in the evolution of decentralised finance. The move underscores the platform’s commitment to managing risk and ensuring the security of its collateral, even if it means moving away from a well-established asset like WBTC. As the DeFi ecosystem continues to grow and evolve, decisions like this one will play a key role in shaping the future of digital finance. With alternative forms of wrapped Bitcoin on the horizon, and Sky leading the way, the coming months are likely to bring further innovation and change to the world of decentralised lending and borrowing.
