Sky WBTC Exposure Slowly Diminishing With New Governance Proposal

Key Points:

• Sky is considering a proposal to completely eliminate wrapped Bitcoin from its ecosystem due to concerns over custody and control.
• The Sky WBTC exposure offload proposal outlines a gradual removal of wBTC collateral in five steps, beginning September 26, with each step requiring a separate vote.
• With $200 million in loans, the recent changes in Sky WBTC exposure have heightened concerns.

Sky, the decentralized finance platform behind what was once called MakerDAO, is going to vote on a proposal for the full removal of wrapped Bitcoin from its ecosystem.

Read more: MakerDAO Redenominates MKR Token into 24,000 NGT in Endgame Plan

Sky WBTC Exposure Removal Due to Custody Concerns

Announced in a Thursday governance update, the Sky WBTC exposure could have serious ramifications in the DeFi world, considering the $200 million worth of loans on the platform is backed by wBTC.

BA Labs, the leading governor of Sky, has submitted a proposal to phase out Sky WBTC exposure due to mismanagement by its custodian. The strategy would therefore be done by offboarding wBTC as collateral assets in phases in five stages starting from September 26. Each of these will require a separate vote.

The lending platform SparkLend, owned by Sky, currently has roughly $73 million of loans collateralized with wBTC, and another $127 million of debt is attached to the token in Sky’s older vaults, CoinDesk reported. This token is for use on other blockchains, has a market capitalization of $9 billion, and is central in DeFi lending.

Sky Considers Full Withdrawal of wBTC Amid Controversy Over Custody Change

The tensions around wBTC had mounted after an announcement by BitGo recently to transition control of wBTC to a new joint operation between itself and BiT Global was made. Teaming up with BiT Global was supposed to decentralize custody across three entities globally, which triggered some controversial questions in the DeFi community about the command and safety of this asset.

Sky had already ceased to accept wBTC as collateral by reducing its debt ceiling to zero, bringing its loan-to-value down to 0%. Effectively, this made wBTC virtually unusable for DAI, the decentralized stablecoin of the platform, which requires more collateral versus the amount of DAI borrowed.

Being one of the leading DeFi projects and the issuer of $5 billion worth of DAI, if the proposal by Sky moves forward, the decision will be closely followed by analysts and observers in the industry due to the possible wide implication on the DeFi sector.