Sky, formerly known as MakerDAO, recently decided to remove Wrapped Bitcoin (WBTC) as collateral for borrowing through a governance vote that took place on Sept. 19. BA Labs, now known as the Risk Core Unit, was named stability advisor for the process and also suggested removing WBTC as a collateral option. Starting on Oct. 3, SparkLend, the money market in the Sky ecosystem, will begin reducing the collateral cap for using WBTC as collateral for borrowing. In addition, measures such as reducing the liquidation threshold and raising linear interpolation will be implemented to make WBTC vaults less attractive to users. The entire process is expected to end by Nov. 14, but it could potentially take longer.
Currently, WBTC is being used as collateral for $61.2 million in debt on SparkLend’s platform, with the majority of WBTC liabilities being in DAI, one of Sky’s ecosystem native stablecoins. Of the 108,689 Maker (MKR) tokens allocated as votes, 88.1% voted in favor of the wind-down plan to remove WBTC as collateral, with 11.8% abstentions and no votes against the proposal. These changes in the use of WBTC raise concerns in the industry, particularly following BitGo’s announcement of a multi-jurisdictional custody model that includes a joint venture with BiT Global to gain direct control over WBTC. This move led to intensified concerns after 12,000 BTC were removed from USDD’s backing, which was also included in BA Labs’ proposal.
BitGo’s CEO, Mike Belshe, actively tried to avoid the removal of WBTC as collateral on SparkLend, arguing that it would hurt users who do not have the necessary stablecoin amount to remove their WBTC as collateral from the platform. However, his argument was not enough to sway voters and prevent the removal of WBTC from SparkLend’s collateral list. Aave is also evaluating the risks of having WBTC as a viable collateral option, with a proposal by LlamaRisk on Sept. 18 to reduce the loan-to-value in WBTC vaults to zero and lower supply and borrowing caps. Both Sky and Aave are exploring alternatives to replace WBTC, such as Coinbase’s cbBTC and Threshold’s tBTC.
In conclusion, the decision to remove WBTC as collateral for borrowing in the Sky ecosystem was made through a governance vote and will be implemented gradually starting on Oct. 3. Despite concerns raised in the industry following changes in the custody model for WBTC, the majority of voters favored the wind-down plan. BitGo’s CEO’s efforts to prevent the removal of WBTC as collateral were unsuccessful, leading to the decision to no longer allow WBTC as collateral on SparkLend. Both Sky and Aave are now looking at alternative options such as cbBTC and tBTC to replace WBTC as collateral in their respective ecosystems.
