Yesterday, BitGo's official blog showed that BitGo and BiT Global are creating a joint venture to diversify WBTC's custody and cold storage business across multiple jurisdictions, and BitGo will become a minority shareholder in the new joint venture. It is reported that BiT Global is a regulated trust and corporate service provider (TCSP) headquartered in Hong Kong, and has a strategic partnership with Justin Sun and the Tron ecosystem.

As soon as the news came out, users speculated that Justin Sun may have significant influence or control in the joint venture that manages WBTC. This matter has a significant impact on the DeFi market, and the market is worried that the transfer of control of WBTC to his hands will bring unpredictable risks.

Jupiter co-founder meow published "A letter to new and old custodians of WBTC" on social media, stating that Bitcoin custodied by WBTC should not be used for other purposes, and hoped that BitGo could clarify the community's doubts.

The first project to react in the DeFi market was MakerDAO, the largest acceptor of WBTC. The MakerDAO community plans to spontaneously initiate a proposal to "reduce the size of WBTC collateral" in the executive vote on August 12 to deal with the potential risks of changes in custody rights.

BA Labs, a crypto risk analysis and assessment agency, said that given the upcoming changes in WBTC custody rights, WBTC collateral integration faces higher potential risks on Maker and SparkLend. If Bitgo or other relevant parties cannot convincingly prove the security of maintaining the existing WBTC collateral integration, BA Labs will consider further adjusting parameters to protect the protocol until WBTC collateral on Maker and SparkLend is completely removed.

In response to the above doubts, Justin Sun said, "BTC has not changed compared to before. The audit is conducted in real time and can be accessed through http://wbtc.network. The minting process is entirely managed by custodians Bitglobal and Bitgo, following the same procedures as before. Simply put, Bitglobal and Bitgo will not sign any unaudited transactions. The keys are still protected using the same Bitgo cold wallet technology and offline keys, and are backed up in multiple countries and regions. My personal participation in WBTC is purely strategic. I do not control the private keys of the WBTC reserves, nor can I move any BTC reserves. "

But Justin Sun's statement did not quell market discussions. BitGo's CEO Mike Belshe responded on Monday, saying that he would downplay Justin Sun's involvement in the joint venture and emphasized BitGo's long-term commitment to security. Belshe said: "BiT Global has a dedicated team managing multiple customer accounts, and they have the responsibility to ensure safekeeping. They cannot lend funds, and they cannot give funds to Justin Sun, me or anyone else at will, otherwise they will violate the law and face the risk of going to jail." He also said: "In terms of audits, we have always had wbtc.network, which will continue to operate."

So why did BitGo's cooperation with Justin Sun's related companies trigger such a strong market reaction? What is the relationship between BitGo and WBTC, and what impact will the cooperation have on the market? BlockBeats has compiled the views of some industry insiders as follows:

Auntie Ai (on-chain data analyst)

Today, there have been many discussions about "WBTC custody changes" - MakerDAO's new proposal considers closing new WBTC lending and reducing Spark's WBTC lending ratio to 0; Sun Ge came out to clarify, and Jupiter Lianchuang also published an article to express doubts.

This tweet will sort out the relevant data of $WBTC to help everyone better understand how important this familiar but somewhat unfamiliar asset is to the current crypto ecosystem.

Origin of WBTC

WBTC (Wrapped Bitcoin) is an ER20 token issued on the Ethereum network, and its value is pegged to Bitcoin at a one-to-one ratio; each WBTC has a corresponding Bitcoin as a reserve, which is managed by a custodian (currently Bitgo) to ensure that WBTC holders can redeem it for Bitcoin at any time.

WBTC was first proposed in 2017, and the white paper was officially released and put into use in 2019. By 2020, the scale of locked BTC has exceeded US$2.1 billion, making it a well-deserved "bridge between Bitcoin and Ethereum."

WBTC data

Currently WBTC supports Ethereum / Base / Kave / Osmosis / Tron networks, of which Ethereum mainnet casting accounts for as high as 99.8%. As of today, 154,726 WBTC (worth $9.45 billion) have been minted, accounting for 0.78% of the total market value of Bitcoin.

According to the Dune panel "WBTC: Supply Dynamics" data, more than 41% of WBTC is currently used in the lending ecosystem, of which the largest usage scenario (acceptor) is MakerDAO, and nearly 32% is used for direct transactions.

Data panel: https://dune.com/21co/wbtc

WBTC proofreading information

The impact on WBTC security and actual use is currently unclear. If you want to learn more about WBTC partners/specific transactions for minting and destruction/BTC escrow addresses, you can go to https://wbtc.network/dashboard to find relevant information. The official has disclosed it very completely.

Overseas crypto KOL

@iamDCinvestor: WBTC's dramatic performance is a good example of why ETH has such a strong value proposition in the cryptocurrency and DeFi space.

@art_pleb: Agree without irony. My argument has always been that BTC will dominate if it has a relatively trust-minimized bridge to DeFi applications on a higher performing chain. Probably L2s or ETH/SOL. If this doesn't happen, ETH has a bright future ahead with its native on-chain functionality.

WOO X COO Willy Chuang

Regarding WBTC, from a long-term perspective, we are more concerned about:

1. Potential risks arising from changes in asset custody methods: BitGo will move its WBTC business to a joint venture with BiT Global. Although BitGo emphasizes that this process is seamless and transparent to the community, potential risks may still trigger a crisis of trust in the community. The handover will be completed within the 60-day transition period. Whether there will be major changes in the subsequent asset custody method and core key holders, the community needs BitGo to make this information transparent;

2. Audit and compliance: Audit data needs to be updated in real time, and the community is allowed to conduct a secondary check on the audit content. From a compliance perspective, whether this acquisition involves financial and account security risks still needs extensive attention;

3. Impact on Defi: Recently, the gas fee on ETH has fallen below 1gwei, and the activity on the chain has continued to decline. Most of wBTC is used in AAVE V3, Compound, Spark & MakerDAO. There has been no significant decoupling so far, but if BitGo cannot make a satisfactory response in the future, it is expected that more Defi protocols will reduce the proportion of wBTC as collateral in the future due to risk considerations. Once the on-chain income and application of wBTC decrease, it is expected that a large number of users will redeem it. The follow-up will depend on BitGo's response to the incident;

Liu Feng (BODL Founder of the Fund)

The launch of WBTC is one of the most important landmark events in the gestation period before the Ethereum DeFi ecosystem burst into great vitality. That was the coldest time in the second half of 2018. BitGo and the DeFi protocol, which was still in its infancy but had begun to show vitality, jointly launched WBTC, introducing BTC assets into the Ethereum ecosystem in a relatively centralized way, but with good reputation among the participants.

Now the situation has changed drastically.

Simply put, BitGo brought WBTC into Justin Sun's home: the precious bitcoins that need to be locked up to cast WBTC will have a custodian service provider in the future-a company called BiT Global from Hong Kong. The point is: this BiT Global is a joint venture between BitGo and Justin Sun. The question is, is BiT Global reliable? BigGo announced that BiT Global is a "TCSP (Trust or Corporate Service Provider)" licensed company in Hong Kong, which looks quite impressive... But is the TCSP license valuable? Anyway, the data I saw is: this license was launched in 2018, and as of September 2020, more than 7,300 licenses have been issued...

You can figure it out for yourself.

By the way, the information I saw is that BiT Global was registered on August 9, 2023. There was also an important news that month: BitGo had previously failed to produce audit reports on time, and Galaxy Ditigal cancelled the acquisition agreement. It failed to win the lawsuit, so it had to suspend its acquisition of Prime Trust, and laid off employees, reduced costs, and found money to save itself. Finally, in August 23, it announced that it had raised $100 million.

When BitGo announced this round of financing in August 2023, it was coy about not disclosing who the investors in this round were. Later, it was reported that some of the new investors were from Asia. Now it seems that Sun Ge may have already had his hands on BitGo at that time. This is just speculation. BitGo is a centralized custodian, and WBTC is a centralized synthetic asset. I think BitGo has a responsibility to make these arrangements clear, otherwise...

Shuidi Capital CEO Dashan also said in the comment area that "problems that can be solved with technology should not test human nature."

Insight Finance

Bitcoin fell, and WBTC caused a huge shock.

MakerDao issued a proposal to sell:
The community of DeFi project MakerDAO launched a proposal to clear WBTC in Maker's collateral warehouse. Once the proposal came out, it caused a huge shock in the industry. After all, Maker is the largest mortgage lending protocol in the industry, and currently manages nearly US$5 billion of various digital assets on the chain. WBTC is the largest BTC cross-chain asset on the Ethereum chain, currently managing more than 150,000 BTC with a total value of nearly 10 billion US dollars.

WBTC may lead to a large number of Defi projects, and L2 projects are at risk:Currently, many Defi projects will choose WBTC to flow in from Ethereum. Once WBTC anchors, most projects will be implicated. Just like a cluster bomb surge.

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