MakerDAO may adjust wrapped Bitcoin (WBTC) policy due to Justin Sun risk concerns

BA Labs on MakerDAO wants the Maker protocol to limit exposure to wrapped Bitcoin (WBTC). The recommendation follows the news that WBTC issuer BitGo will partner with BitGlobal to transfer WBTC control to a new joint venture involving Tron founder Justin Sun.

The joint venture will now manage WBTC, and custody of the BTC reserves backing WBTC will be split across three jurisdictions, including Hong Kong and Singapore, instead of the US alone. Although Sun has assured users that these changes will not affect WBTC, many DeFi stakeholders think otherwise.

MakerDAO to vote on limiting WBTC exposure

To limit potential risks, BA Labs recommends that Maker restrict the growth of WBTC on the protocol by reducing the use of WBTC in three core Maker vaults to zero and disabling WBTC borrowing on SparkLend. These changes will limit new loans from using WBTC as collateral on all MakerDAO protocols if implemented.

The team believes this action is necessary due to Justin Sun’s history. They are concerned about past events involving all projects associated with the crypto entrepreneur, such as TUSD stablecoin, stUSDT, and HTX.

Additionally, they mentioned that BitGo’s decision, following its unsuccessful acquisition by Galaxy, indicates potential issues within the company. BitGo CEO Mike Belshe has denied this.

Interestingly, BA Labs is not the only one who shares these concerns. Jupiter founder Meow also questioned the partnership, particularly how parties would benefit from it and whether the BTC in the reserves would be used for any purpose. Meow has offered to host a forum for all parties to clarify concerns about the joint venture.

Meanwhile, the MakerDAO ecosystem team has approved the recommendations from the BA Labs, and the community will now vote on the proposal on Monday, August 12, 2024. Some community members have complained that the risk might be overstated as the changes will not take effect until 60 days from now.

Sun says his involvement is strategic

Crypto entrepreneur Justin Sun has addressed concerns that several people have raised. According to him, there are no changes to how WBTC operates because audits still occur in real-time, and the custodians BitGlobal and BitGo will manage the minting.

He emphasized that his role in the project is purely strategic, as the reserve’s keys remain protected using the same technology as before. He asserts that he is involved because he views WBTC as an essential part of DeFi and wants to ensure its sustainability.

Sun said:

“My personal involvement in WBTC is entirely strategic. I do not control the private keys to the WBTC reserves and cannot move any BTC reserves.”

BitGo CEO Belshe has supported Sun’s claims. He described the community’s reaction as based on Justin Sun’s involvement rather than facts about the joint venture. The partnership does not change anything in the issuance process of WBTC, and the underlying security remains the same, he said.