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Sky, formerly MakerDAO, decided to remove the usage of Wrapped Bitcoin (WBTC) as collateral for borrowing through a governance vote concluded on Sept. 19.
BA Labs, the former Risk Core Unit, was named stability advisor for the process. The entity also suggested removing WBTC as a collateral option.
Starting Oct. 3, SparkLend, the money market in the Sky ecosystem, will start reducing the collateral cap for using WBTC as collateral for borrowing. Additionally, measures such as reducing the liquidation threshold and raising linear interpolation will be implemented to make WBTC vaults less attractive to users.
According to the proposal, the whole process is expected to end on Nov. 14, but it could potentially take more time.
SparkLend’s dashboard shows that WBTC is used as collateral for $61.2 million in debt on the platform Most of WBTC’s liabilities are in DAI, one of Sky’s ecosystem native stablecoins.
Of the 108,689 Maker (MKR) tokens allocated as votes, 95,826 MKR (88.1%) voted favorably for the wind-down plan. Moreover, the vote had 12,863 MKR (11.8%) in abstentions and no votes against the proposal.
Changes in WBTC raise concerns
BA Labs’ proposal in Sky’s governance followed BitGo’s announcement of a multi-jurisdictional custody model to accelerate a global expansion plan. The plan includes a joint venture with BiT Global, with the new joint venture gaining direct control over WBTC.
The move led to several concerns in the industry, which intensified after 12,000 BTC were removed from USDD’s backing, which was also included in the BA Labs proposal. USDD is the stablecoin tied to the TRON ecosystem.
Mike Belshe, CEO at BitGo, was actively trying to avoid the removal of WBTC as collateral on SparkLend. Belshe even stated that the move would hurt users who don’t have the necessary stablecoin amount to remove their WBTC as collateral from the platform.
However, the BitGo CEO’s argument was not enough to sway voters and prevent the removal of the synthetic Bitcoin (BTC) from SparkLend’s collateral list.
Additionally, Aave is also assessing the risks of having WBTC as a viable collateral option, with a Sept. 18 proposal by LlamaRisk pushing to reduce the loan-to-value in WBTC vaults to zero. The proposal also suggested lowering supply and borrowing caps.
Both Sky and Aave are looking for options to replace WBTC, such as Coinbase’s cbBTC and Threshold’s tBTC.