DeFi is standing at a fork in the road.
On one side, prosperity.
The other is uncertainty.
The good news? We can decide which way we go.
Less than two weeks remain until BitGo changes custody of WBTC, fundamentally changing an asset that makes up over 10% of all DeFi TVL.
Since the BitGo announcement on August 8th, the DeFi world has been reeling from the rapid adjustment needed to reduce the risk of a depegged WBTC. Changes to Aave and Maker protocols have been made to offboard WBTC, and other DeFi projects are taking note.
Here’s the story, and why we have been working for more than 4 years on this specific problem of centralized BTC wrappers.
#Flying Too Close to the Sun
The WBTC saga began on August 8th when BitGo formally announced it would be changing the custody of its flagship product, Wrapped Bitcoin, and handing over the multisig keys to a Justin Sun-related entity, BiT Global.
Some of the details of the deal are not clear, but the outcome is obvious: WBTC is no longer the trusted asset it once was.
You see, WBTC literally catalyzed DeFi. Without it, there’s no telling what the industry would look like today. WBTC made it so Bitcoin holders could tap into their wealth and use it productively on Ethereum.
Today, the dominance of WBTC is remarkable:
- ~20% of Aave TVL between V2 and V3 contracts
- ~10% of DAI’s backing
- Over 10% of all DeFi TVL
- Still makes up 96% of Bitcoin wrappers on Ethereum
For an asset that is so widespread, a depegging event would be catastrophic. Think of the scale of Luna/UST from the last cycle. But you might be wondering, why would WBTC depeg?
Because it is centralized. Just like FTX, Celsius, and BlockFi.
Before, that wasn’t a strong concern because BitGo was a trusted custodian. If anything has been learned in this industry, it's that being overly cautious is never a bad decision. And when it comes to WBTC's new model, caution is warranted.
This is Justin’s track record for assets that he has been involved with:
- HBTC depegged, now worth less than .1 BTC
- HUSD depeg
- USDD Bitcoin reserves moved arbitrarily and with no DAO vote
- TUSD reserve magic, with no disclosure
With a history like this, there is no room for error, and that’s why DeFi has swiftly moved to offboard WBTC: attempting to limit the damage that could be done.
#There’s Hope…
Thankfully, we have been building an alternative to WBTC for the past four years. tBTC, now operated by the Threshold Network DAO, is a decentralized Bitcoin on Ethereum, Solana, Arbitrum, Base, and many other EVM chains.
Here are some helpful resources to get you started:
- How to mint tBTC
- tBTC 101
- tBTC v2 Github + Documentation
tBTC is completely permissionless to mint and redeem (whereas WBTC can only be redeemed by select companies), it has been live since 2020, and the TVL is currently 230M or 3,500 BTC.
So, the answer to WBTC’s changes is simple: We can embrace decentralization and avoid the dangers of letting single entities custody our BTC.
As we approach WBTC’s custody model changes on October 8th, it is more important than ever to help spread the word, educate your friends and community, and migrate out of WBTC and into tBTC.
