Exclusion of WBTC: Consequences and Evaluation
Sky, previously identified as MakerDAO, has opted to eliminate Wrapped Bitcoin (WBTC) as collateral for loans following a recent governance vote concluding on September 19th. The Risk Core Unit, formerly BA Labs, has been assigned as the stability advisor for this process and has proposed the removal of WBTC as a collateral choice.
Starting October 3rd, SparkLend, the financial market within the Sky network, will gradually decrease the collateral cap for WBTC. Further actions like reducing the liquidation threshold and increasing linear interpolation will be enforced to discourage users from utilizing WBTC vaults. All steps are estimated to finalize by November 14th, with a possibility of extending beyond this timetable.
Presently, WBTC is utilized as collateral for a $61.2 million debt on SparkLend, predominantly in DAI, the ecosystem’s native stablecoin. Out of the total 108,689 Maker (MKR) tokens participating in the wind-down plan vote, 88.1% (95,826 MKR) supported the decision, whereas 11.8% (12,863 MKR) abstained, and there were no votes against the proposal.
The exclusion of WBTC as collateral has raised concerns within the sector, particularly after BitGo’s revelation of a new custody model through a collaboration with BiT Global. This alliance would wield direct authority over WBTC and raised apprehensions subsequent to the withdrawal of 12,000 BTC from USDD’s reserve, as highlighted in BA Labs’ proposition.
Mike Belshe, BitGo’s CEO, articulated efforts to avert the dismissal of WBTC as collateral on SparkLend, highlighting potential adverse effects on users who might lack sufficient stablecoins to retrieve their WBTC. Despite these assertions, the resolution to eliminate WBTC from the collateral roster was affirmed.
Reacting to these modifications, Aave is scrutinizing the risks tied to WBTC as collateral, with a suggestion by LlamaRisk on September 18th advocating for a reduction of loan-to-value in WBTC vaults to zero. Alternatives to WBTC, like Coinbase’s cbBTC and Threshold’s tBTC, are being contemplated by both Sky and Aave for potential adoption.
To conclude, the elimination of WBTC as collateral by Sky’s governance signals a notable transformation in the network and underscores the significance of diligently evaluating collateral selections and risks in decentralized frameworks. The sector’s reaction and exploration of alternative avenues emphasize the continual evolution and ingenuity within the DeFi realm.
