Threshold, a decentralized finance (DeFi) protocol, has proposed merging its Bitcoin wrapper token, tBTC, with Wrapped Bitcoin (WBTC). This move, introduced on August 29, seeks to prevent Justin Sun from potentially taking control of WBTC.
Concerns Over WBTC Control
Concerns about WBTC’s control arose after BitGo, the custodian managing the Bitcoin reserves backing WBTC, made an announcement. They revealed plans to partner with BiT Global, a Hong Kong-based cryptocurrency exchange. This partnership aims to expand WBTC’s presence beyond the U.S. However, it also gives BiT Global partial control of the multisignature wallet holding WBTC’s Bitcoin reserves. The crypto community, wary of Justin Sun, fears the misappropriation of collateral tied to his projects.
Justin Sun’s Involvement Sparks Alarm
On August 9, BitGo announced a partnership with BiT Global. The collaboration is designed to broaden WBTC’s reach beyond the United States. However, the involvement of Justin Sun, a figure often viewed with suspicion in the crypto community, has caused unease. Many fear the potential misappropriation of collateral linked to his associated projects.
Threshold responded by proposing a shift from WBTC’s centralized custody model to a decentralized system. They suggested replacing WBTC’s current model with Threshold’s decentralized custody and permissionless mint/redeem mechanism. This change would transfer WBTC’s control to the Threshold decentralized autonomous organization (DAO), which promises greater security and transparency.
Threshold’s Decentralized Management Model
Threshold’s plan would give the DAO full control over WBTC’s minting and redeeming processes. Current merchants would lose their privileges. Additionally, Threshold would phase out its tBTC wrapper. Holders of tBTC would have the option to redeem their tokens 1:1 for either WBTC or native BTC.
MakerDAO Considers Restricting DAI Minting with WBTC
In light of these developments, MakerDAO is reconsidering its use of WBTC as collateral for minting DAI. BA Labs pointed to past issues with TrueUSD, a stablecoin linked to Sun, that faced operational and transparency problems. These problems arose after Sun-affiliated groups acquired it. The issues included suspending real-time proof of reserves, price volatility, and disruptions in redemption services.
BA Labs argues that Sun’s involvement in WBTC’s management structure presents significant risks to MakerDAO. They suggested MakerDAO and Spark fully offboard WBTC unless BitGo and its partners demonstrate the safety of current collateral arrangements.
Currently, around 10% of DAI’s 5.2 billion token supply is backed by WBTC. MakerDAO’s vaults hold $500 million worth of WBTC. Additionally, SparkLend has $289.3 million worth of WBTC, representing 7% of the protocol’s $4.1 billion in total value locked.
Justin Sun addressed concerns by stating on social media that his involvement in WBTC is purely strategic. He emphasized that he does not control the private keys to WBTC reserves.
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