Wrapped Bitcoin (WBTC), a tokenized version of Bitcoin designed to operate on the Ethereum blockchain, has recently completed an important transition to a geographically distributed custody model. This new arrangement sees the control of the underlying Bitcoin shared across three key global financial hubs: Singapore, Hong Kong, and the United States. This strategic partnership involves BitGo and BiT Global, leveraging a multisignature agreement to enhance the security and robustness of WBTC’s custody.
The revised custody structure employs a multisignature system that necessitates at least two validated signatures for any transaction or transfer of funds. This requirement is aimed at increasing the security and reducing the risk of unilateral access to the funds. BitGo and BiT Global’s collaborative approach ensures that the custody of WBTC is not centralized in any single jurisdiction or entity, thus mitigating jurisdictional risks.
Users and Market Perception
From the user perspective, the operational functionality of WBTC on the Ethereum network remains unchanged despite the shift in custody. However, the announcement has stirred some concerns among community members, particularly regarding the involvement of Justin Sun, a controversial figure in the cryptocurrency space. Concerns were specifically triggered by his role in past projects that experienced operational and transparency issues, notably with the TrueUSD stablecoin.
The decentralized lending platform Sky, previously known as Maker, was among the first to react to these concerns. In a governance post dated August 9, Sky’s community discussed the potential risks associated with Sun’s involvement in WBTC. Citing the issues under Sun’s leadership with TrueUSD—such as management changes, suspension of real-time proof of reserves, and redemption service interruptions—the community expressed apprehension about continuing to use WBTC as collateral.
Following deliberations, a significant 88% of Sky’s community voted on September 19 to remove WBTC from its list of collateral assets. This decision underscored the community’s caution towards potential risks in governance and operational transparency associated with WBTC under the new custody model.
Reconsideration and Ongoing Discussions
Despite the initial decision to drop WBTC, subsequent discussions between Sky and Mike Belshe, co-founder of BitGo, have prompted a reassessment of the situation. Belshe’s engagement with the community helped clarify the safeguards and operational integrity of the new custody model, leading to a reconsideration of the earlier governance decision.
| Aspect | Details |
|---|---|
| Custody Model | Multi-jurisdictional, multisignature agreement |
| Partners | BitGo and BiT Global |
| Concerns Raised | Involvement of Justin Sun, potential operational risks |
| Community Decision | 88% voted to remove WBTC as collateral, reconsideration ongoing |
| Stakeholder Reassurance | Discussions with BitGo co-founder addressing community fears |
The transition of Wrapped Bitcoin to a multi-jurisdictional custody model marks a significant development in the tokenized asset’s governance and operational framework. While it aims to bolster security and distribute custody risk, it also brings to the forefront the delicate balance required in managing community trust and responding to concerns regarding associated personalities. As the situation unfolds, the continued dialogue between key stakeholders and the community will be crucial in shaping the future acceptance and stability of WBTC in decentralized finance.
Featured image credit: DALL-E by ChatGPT
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