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08/29/2024

DeFi Protocol Threshold Proposes Bitcoin Wrapper Merger to 'Save WBTC'

The proposal would transfer control of WBTC to Threshold. Decentralized finance (DeFi) protocol Threshold is proposing to merge its BTC wrapper token, tBTC, into Wrapped Bitcoin (WBTC) to "save WBTC" amid concerns about an impending change in control over WBTC, according to an August 29 proposal on Threshold's governance forum. On August 9, BitGo — the Bitcoin custodian backing WBTC — announced a planned partnership with BiT Global, a

DeFi Protocol Threshold Proposes Bitcoin Wrapper Merger to 'Save WBTC'

The proposal would transfer control of WBTC to Threshold.

Decentralized finance (DeFi) protocol Threshold is proposing to merge its BTC wrapper token, tBTC, into Wrapped Bitcoin (WBTC) to "save WBTC" amid concerns about an impending change in control over WBTC, according to an August 29 proposal on Threshold's governance forum.

On August 9, BitGo — the Bitcoin custodian backing WBTC — announced a planned partnership with BiT Global, a Hong Kong-based cryptocurrency exchange. Under the partnership, aimed at expanding WBTC's presence beyond its U.S.-centric focus, BiT Global would take partial control of the multisig wallet holding the Bitcoin that backs WBTC.

"This announcement has been controversial due to Justin Sun's involvement, with many in the ecosystem expressing concerns that his 'associated projects show worrying signs of collateral misuse,'" according to Threshold's proposal.

Threshold wants to address those concerns by "replacing [WBTC's centralized custody] and its merchant-based mint-and-burn model with Threshold's decentralized custody mechanism and permissionless mint/redeem," per the proposal.

WBTC is the most popular Bitcoin wrapper, with a market cap of roughly $9 billion, according to CoinMarketCap. Bitcoin wrappers are ERC-20 tokens backed by BTC.

Related: BitGo Plans to Transition Wrapped Bitcoin Business to Multi-Jurisdiction Custody

The proposal seeks to resolve the issue by transferring control of WBTC to Threshold, where WBTC would benefit from the "decentralized custody mechanism and permissionless bridge" of Threshold's decentralized autonomous organization (DAO).

Under the plan, Threshold would be granted "minting/redemption rights for WBTC and other merchants [would be] removed. WBTC DAO powers (e.g., freeze functionality, etc.) [would be] transferred to Threshold's DAO," per the proposal.

Threshold would then wind down its own BTC wrapper token, tBTC, with new tBTC minting to be "disabled and the existing tBTC supply redeemable 1:1 for WBTC (and still redeemable for native BTC)," per the proposal.

In an August 11 post on the MakerDAO forum, risk management firm Block Analitica Labs (BA Labs) proposed closing all new wBTC debt positions and blocking new borrowing against wBTC collateral in an upcoming executive vote, citing similar concerns.