MakerDAO, one of the leading decentralized finance platforms, has taken a significant step by discontinuing borrowing against wrapped Bitcoin (WBTC). This decision, enacted on August 15, 2024, follows the passage of a proposal that received overwhelming support, with nearly 113,000 MKR tokens voting in favor. The move comes in response to concerns over WBTC’s custodian, BitGo, and its new partnership with BiT Global, which includes the controversial figure Justin Sun, founder of the Tron blockchain.
MakerDAO’s Strategic Shift
The recent decision by MakerDAO reflects its proactive approach to managing risk within its ecosystem. The approved proposal mandates the disabling of borrowing against WBTC and reducing the debt ceilings for WBTC vaults to zero. While this move prevents new WBTC borrowing, it does not immediately affect existing WBTC positions. However, the proposal does leave the door open for potential future changes regarding these positions.
Custodian Concerns: BitGo and BiT Global
The catalyst for this decision was BitGo’s transfer of control over WBTC to a joint venture between itself and BiT Global. The inclusion of Justin Sun in this partnership raised red flags among MakerDAO contributors. Sun’s reputation has been marred by controversies, most recently involving TrueUSD (TUSD), which depegged in January 2024. Sun’s involvement with TUSD, where he minted a significant portion of the token’s supply and transferred it to HTX, a centralized exchange under his control, further fueled concerns about the security and integrity of WBTC under this new arrangement.
Implications for DeFi and WBTC
MakerDAO is not alone in reconsidering its relationship with WBTC. The Aave community, another major player in the DeFi space, is also exploring alternatives to WBTC. Marc Zeller, head of the Aave-Chan Initiative, indicated that his organization is working towards onboarding tBTC, a different tokenized Bitcoin alternative. Zeller mentioned that a governance vote on this proposal could take place as early as next week.
Despite these shifts, WBTC remains the most prominent tokenized version of Bitcoin in the market, with a market capitalization exceeding $9 billion—nearly 50 times larger than tBTC, which currently stands at around $185 million. This stark contrast highlights the significant dominance WBTC holds in the tokenized Bitcoin market, even as some DeFi protocols begin to explore alternatives.
The Future of Tokenized Bitcoin: New Entrants
While WBTC’s dominance is clear, the market is buzzing with rumors of new tokenized Bitcoin alternatives. On August 13, Coinbase added to the speculation with a cryptic message, “cbBTC. Coming Soon,” hinting at the potential launch of a new competitor in the space. Although details remain scarce, the introduction of cbBTC could further diversify the options available for tokenized Bitcoin within the DeFi ecosystem.
MakerDAO’s decision to distance itself from WBTC borrowing reflects a broader trend of caution and risk management within the DeFi space. As concerns about custodial practices and partnerships grow, leading platforms like MakerDAO and Aave are exploring safer alternatives to maintain the integrity and security of their protocols. While WBTC remains a dominant force in the tokenized Bitcoin market, the emergence of new alternatives like tBTC and potentially cbBTC could reshape the landscape in the coming months. As the DeFi sector continues to evolve, the choices made by these platforms will play a crucial role in shaping the future of decentralized finance.
