MakerDAO, one of the leading collateralized lending protocols in the crypto space, recently made a bold decision by amending the terms of use for Wrapped Bitcoin (WBTC) as collateral for new loans. This follows concerns raised by the transfer of operational control of WBTC from BitGo to a new joint venture with BitGlobal, involving a change of jurisdiction from the United States to Hong Kong and Singapore.
The MakerDAO Community’s Concerns
MakerDAO’s governance approved an executive vote to reduce the WBTC leverage cap to zero IADs, thus prohibiting any new WBTC-guaranteed loans. In addition, the loan-to-value ratio (LTV) for WBTC has been set at 0%. These adjustments do not affect existing WBTC-backed loans, as the liquidation threshold remains unchanged. MakerDAO contributors have expressed concerns about the controversial reputation of Tron founder Justin Sun and the potential centralization of control as a result of BitGo’s and BitGlobal’s partnership. Although BitGo has emphasized its commitment to legal security and oversight, the MakerDAO community has decided to act as a precautionary measure.
Potential Ecosystem Impact challenge
WBTC, a 1:1 Bitcoin-backed ERC20 token, represents more than $9.1 billion in total issued value. According to Dune data, more than 41% of WBTC is used in loan ecosystems, with MakerDAO being the largest user. A significant reduction in the WBTC guarantee ratio could lead to many redemptions, despite the 1:1 peg on the chain. Lack of liquidity could lead to a liquidity crisis. Other protocols such as AAVE, SparkDAO and Compound are also involved in products related to WBTC. A large-scale stall event could trigger a chain reaction of risks in the ecosystem challenge.
