What if you have Bitcoin and you want to make it work for you in DeFi? There is no convenient way to do it. Using Bitcoin on Ethereum is not available. However, there is a solution. It’s called $wBTC. It’s wrapped Bitcoin, an ERC-20 token. $wBTC is 100% backed by $BTC. The custodian for this $9 billion market cap token is BitGo. However, they recently announced a change in management for $wBTC to BiT Global. That should happen within 60 days.

This happened on 9th August. Since that announcement, a lot of things have happened with $wBTC. So, let’s take a closer look at this.

What Is the Original BitGo Announcement About $wBTC?

The original BitGo announcement about $wBTC seemed fair enough. It announced its move to BiT Global, a Hong Kong based entity. This also means a new custody setup. This joint venture included BiT Global and the Tron ecosystem. Now, Justin Sun heads Tron, and his reputation isn’t that great. That’s one concern. More on this in a moment.

Another concern was that 2 of the 3 multi-sig keys were in the hands of BiT Global. This concern is easy to understand. There’s a $wBTC multi-sig wallet that has three keys. To sign a transaction, you only need two keys. This means that BiT Global, having two keys, centralizes power over $wBTC. 

However, the above-mentioned concern about the multi-sig keys is no more. After enough backlash from the DeFi community, BitGo changed the key distribution. This happened on 14th August. The new change sees the three keys now distributed. There are also 3 jurisdictions, being the US, Hong Kong, and Singapore. So, here’s the new key distribution.

  • BitGo Inc. secures 1 key 
  • BiT Global secures 1 key 
  • BitGo Singapore Ltd. secures 1 key

This change addressed the immediate centralization concern. However, this still leaves some reasons for concern.

For example, on the 10th of August, MakerDAO stops new $wBTC-backed loans. It’s discussing completely off-boarding $wBTC. This was their immediate answer to their BitGo concerns. On the other hand, Aave will make no immediate changes for at least two months. That’s the 60-day wait period. Currently, there’s no alternative to $wBTC. As we already saw, it’s also worth billions in collateral across DeFi.

Why Is Justin Sun So Controversial?

Justin Sun’s reputation is controversial. So, his being part of BiT Global raised concerns. Especially when, at some stage, it looked like BiT Global had control over two out of the three multi-sig keys. So, here are some reasons why Sun is so controversial.

He doesn’t have a good track record about being transparent. For instance, his track record with collateral is poor. Let’s take a look at $TUSD. In September 2023, Sun printed over $815 million in $TUSD. At that moment, $TUSD was not much used. Within 15 minutes, this new fund ended up in a Huobi hot wallet. Now, Sun is controlling Huobi (HTX). 

This is all legit, until you know that Huobi turned off its Proof of Reserves in January 2024. As a result, there was no way of knowing how the $TUSD minting was backed by collateral. Quite a few shady things are going on here. However, Huobi turned its Proof of Reserves on again. You can check these Dune statistics.

Now, this shows the potential issue if BiT Global would have access to two of the three multi-sig keys. Justin Sun would potentially be in a position to access the $wBTC funds. This could lead to regulatory issues. In turn, this could put the entire WBTC ecosystem at risk. A $9 billion fund at the fingertips of Justin Sun is a scary thought. In contrast, BitGo has its funds sitting there. It doesn’t lend or borrow against it or use it for leverage. They’re transparent and show their Proof of Reserves.

The DeFi community trusts $wBTC. The involvement with a controversial person like Sun could take this trust away. It could lead to a mass exodus of wrapped $BTC.

Reactions by Competitors

It didn’t take long for competitors to react to the BitGo announcement. A clear sample is Coinbase announced their $cbBTC on 13th August. This may sound like a good alternative. However, is it? Well, maybe not. For instance, Coinbase doesn’t offer Proof of Reserve of its holdings. This is not a good basis to trust your hard-earned $BTC to them.

Now, in all fairness, most BTC derivatives are unfortunately centralized! However, BitGo’s track record with $wBTC is good. As already pointed out, BitGo is transparent.

$wBTC

Source: X

Conclusion

BitGo is the custodian of $wBTC. It surprised the crypto and DeFi world with a change of custodial course. This involved BiT Global, a firm that Justin Sun has ties with. He has a bad track record with transparency and collateral. Hence, this raised concerns. There’s a 60-day waiting period before the custodial change takes place. During this period, everything will still be fine. Once custody changes, it’s worth keeping an eye out on proceedings.

Injective

Disclaimer

The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment and informational purposes only. Any information or strategies are thoughts and opinions relevant to accepted levels of risk tolerance of the writer/reviewers, and their risk tolerance may be different from yours.

We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence.

Copyright Altcoin Buzz Pte Ltd.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.