Sky, the decentralized finance (DeFi) platform previously known as Maker, has proposed removing Wrapped Bitcoin (WBTC) as collateral due to concerns over WBTC's connection to Justin Sun.
As announced on September 12, the team plans to "offboard WBTC collateral exposure from the Sky Ecosystem, including Legacy Vault Types and SparkLend."
The proposal, which was introduced by BA-Labs, indicates that the process will unfold through a series of executive votes starting on September 26.
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Users holding WBTC positions on SparkLend and Legacy Vaults have been advised to close them to avoid the risk of liquidation as the platform phases out WBTC. SparkLend is currently exposed to $73 million in debt collateralized against WBTC, while legacy vaults hold $127 million in collateralized debts.
The decision to offboard WBTC is primarily driven by recent changes in WBTC ownership and control. A BA-Labs analyst referenced an August partnership between the crypto exchange BitGlobal and BitGo, the custodian responsible for managing WBTC. They claimed that it was "highly likely" that Justin Sun or his affiliates control BitGlobal, though ownership is allegedly concealed through shell companies and nominee directors.
The analyst then explained:
Sun's assumed ownership or control of the WBTC product via BitGlobal poses significant risks due to a troubling negative track record with respect to other Sun affiliated custodial products and stablecoins.
Control of Wrapped Bitcoin is anticipated to transition to a new entity led by BitGlobal as soon as October 8, prompting Sky's team to begin reducing their collateral exposure ahead of this date.
To address the void left by WBTC, Sky is exploring alternative Bitcoin-based assets to serve as collateral. Among the options being considered are Coinbase's cbBTC and Threshold's tBTC. The team is also looking into the possibility of incorporating Bitcoin staking and restaking products into their ecosystem.
Sky's decision to phase out WBTC underscores its cautious approach in light of changing market dynamics and the perceived risks posed by Justin Sun's involvement.
