Bitcoin (BTC) decentralized finance (DeFi) protocol Threshold is proposing to merge its own BTC “wrapper” token, tBTC, into Wrapped Bitcoin (WBTC) in a bid to “save WBTC” following concerns about an impending change in control of the popular BTC wrapper, according to an Aug. 29 proposal in Threshold’s governance forum.
On Aug. 9, BitGo — the cryptocurrency custodian holding the Bitcoin backing WBTC — announced a planned partnership with BiT Global, a Hong Kong-based crypto exchange. Per the partnership, which aims to diversify WBTC’s United States-centric footprint, BiT Global is expected to gain partial control of the multisignature wallet custodying WBTC’s Bitcoin backing.
“This announcement has proven controversial due to the involvement of Justin Sun, with many in the ecosystem, expressing concern over his ‘affiliated projects show worrying signs of possible misappropriation’ of collateral,” Threshold’s proposal said.
Threshold seeks to address these fears by “hot swapping [WBTC’s] centralized custody and merchant-based mint and burn model with Threshold’s decentralized custody and permissionless mint/redeem mechanism,” according to the proposal.
WBTC is the most popular Bitcoin wrapper, with approximately $9 billion in market capitalization, according to CoinMarketCap. Bitcoin wrappers are ERC-20 tokens backed by BTC.
Related: BitGo set to transition Wrapped Bitcoin business to multi-jurisdictional custody
Source: BitGo
The proposal aims to resolve this by effectively transferring control of WBTC to Threshold, where WBTC would purportedly benefit from the decentralized autonomous organization’s (DAO) “decentralized custody and permissionless bridging mechanism.”
Per the plan, Threshold would be granted “merchant (mint/redeem) privileges for WBTC and other merchants [would be] removed. The WBTC DAO privileges (e.g. freeze function, etc.) [would be] transferred to Threshold DAO,” the proposal said.
Threshold would then effectively deprecate its own BTC wrapper, tBTC, with further tBTC minting being “disabled and the existing tBTC supply made redeemable 1:1 for WBTC (and remains redeemable for native BTC),” according to the proposal.
In an Aug. 11 post on the MakerDAO forum, risk management firm Block Analitica Labs (BA Labs) proposed closing all new wBTC debts and preventing new borrowing against wBTC collateral in an upcoming executive vote, citing similar concerns.
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