- WBTC custody woes persist after revelation that BiT Global will have more control.
- Coinbase has stepped up to challenge BitGo by unveiling a WBTC alternative.
Justin Sun’s involvement in WBTC’s custody and the ensuing trust issues raised by some community members have attracted other wrapped Bitcoin [BTC] derivatives challengers.
Coinbase is the latest to unveil a competing alternative, CbBTC.
Many users have raised concerns about transferring WBTC custody from BitGo to Justin Sun’s firm, BiT Global.
With other DeFi players like Maker threatening to delist WBTC from their collateral, other challengers, like Coinbase, seem ready to capitalize on Justin Sun’s woes.
Reaction to Coinbase’s cbBTC
For perspective, wrapped BTC is a crucial collateral instrument within the overall DeFi system. It enhances BTC liquidity, especially within the robust Ethereum DeFi ecosystem.
They are held 1:1 with BTC, meaning the issuing entity must hold equivalent BTC as collateral.
That would apply to cbBTC, too.
Nevertheless, the community has welcomed Coinbase’s challenge to WBTC dominance. Reacting to the update, market commentator Adam Cochran blamed BitGo for fumbling WBTC dominance, saying,
“BitGo partnering with Justin Sun for wBTC is about to go down as one of the top 5 fumbles in crypto history.”
The same sentiment was echoed by another user, who stated,
“This week may mark the turning point when BitGo went from being the market dominant BTC derivative, with a $9.3 billion market cap, securing several billion in loans across DeFi, to a very rapid decline.”
However, Mike Belshe, BitGo’s CEO, took a swipe at Coinbase’s move, terming the firm “Central Bank BTC.”
Put differently, Belshe’s criticism meant that Coinbase is highly regulated, and the same would befall cbBTC. As a result, any restriction or confiscation would affect the BTC derivative.
According to Belshe, this was the problem BitGo was trying to solve with the BiT Global partnership. The plan, which will be effective after 60 days, was to allow WBTC custody across multiple jurisdictions.
However, in a recent X Spaces post, Belshe revealed that BiT Global would have access to two of the three multsig keys to WBTC custody operations, including back-up to cold storage.
This meant that Sun’s firm would have more control over custody operations.
The community had an issue with the arrangement, especially Meow, the pseudonymous Jupiter Exchange founder and one of the co-founders of WBTC.
“Yes, this is my main contention now.”
As a result of the contentions, some even claimed that WBTC could see unwindings before the 60-day notice period.
It remains to be seen how quickly Coinbase’s alternative will gain traction after its successful Base launch and recent expansion to Hawaii.
Risky side of wrapped BTC products
Nevertheless, since most commonly wrapped BTCs are centrally controlled, crypto analyst Marty Party claimed they all present market risk.
“Once again. Permissioned Bridges and Wrapped native tokens are not safe, not Web3 and should be avoided at all costs.”
Party suggested the adoption of permissionless wrapped derivatives to avoid the trust issues being witnessed in WBTC custody saga.
Whether Coinbase will iterate its upcoming wrapped BTC product to mitigate centralization risk remains to be seen.
