Threshold Proposes to Merge Its tBTC Token Into Wrapped Bitcoin (WBTC) to 'Save WBTC'

Bitcoin BTCUSD decentralized finance (DeFi) protocol Threshold is proposing to merge its own BTC “wrapper” token, tBTC, into Wrapped Bitcoin (WBTC)

DeFi protocol Threshold has proposed merging its BTC “wrapper” token, tBTC, with Wrapped Bitcoin (WBTC) to “save WBTC” from an impending change in control, according to an Aug. 29 proposal in Threshold’s governance forum.

The move comes amid concerns over an announced partnership between BitGo, the cryptocurrency custodian holding the Bitcoin (BTC) that backs WBTC, and BiT Global, a Hong Kong-based crypto exchange.

The partnership, which was announced on Aug. 9, would see BiT Global gain partial control of the multisignature wallet custodying WBTC's Bitcoin, in a bid to diversify WBTC's U.S.-centric footprint.

However, the involvement of Sun in the deal has raised eyebrows, with several parties expressing concerns over his projects' alleged involvement in suspicious activities, according to the Threshold proposal.

"This announcement has proven controversial due to the involvement of Justin Sun, with many in the ecosystem, expressing concern over his ‘affiliated projects show worrying signs of possible misappropriation’ of collateral," the proposal reads.

The proposal aims to address these concerns by merging tBTC with WBTC in a bid to swap out "WBTC's centralized custody and merchant-based mint and burn model with Threshold’s decentralized custody and permissionless mint/redeem mechanism."

"This would effectively save WBTC from the threat of centralized control and open up the possibilities for further decentralization and community involvement in the future," the proposal adds.

According to Threshold, the move would benefit WBTC by transferring its control to a DAO, which would be able to oversee the token's custody and bridging mechanism in a decentralized manner.

"Threshold would be granted merchant (mint/redeem) privileges for WBTC and other merchants are removed. The WBTC DAO privileges (e.g. freeze function, etc.) are transferred to Threshold DAO," the proposal states.

The move would also see Threshold deprecate its own BTC wrapper, with further tBTC minting being disabled and the existing tBTC supply made redeemable 1:1 for WBTC (and remaining redeemable for native BTC), according to the proposal.

Meanwhile, Block Analitica Labs (BA Labs), a risk management firm, has proposed closing all new Wrapped Bitcoin (wBTC) debts and preventing new borrowing against wBTC collateral in an upcoming executive vote, over concerns related to the token’s upcoming multisig custody change.

The proposal, which was posted on the MakerDAO forum on Aug. 11, aims to protect MakerDAO from potential risks arising from the planned handover of WBTC's multisig custody to BiT Global, a Hong Kong-based crypto exchange.

The move comes as part of a broader effort to expand WBTC's presence outside the U.S., following concerns that the token's footprint may be too centralized within the country.

However, the involvement of several parties, including FTX and Alameda Research, in the deal has raised concerns among some members of the MakerDAO community.

"We believe that the community should be made aware of the potential risks involved in this decision and that further discussion is warranted before proceeding with the vote," BA Labs wrote in the post.

The firm highlighted several potential risks, including the possibility of BiT Global experiencing financial difficulties or legal challenges, which could impact the safety of the WBTC reserves.

Additionally, BA Labs expressed concerns over the involvement of FTX and Alameda, both of which are known to have close ties to quantitative trading firms and hedge funds, which could lead to the preferential treatment of certain parties in the WBTC market.

"This could lead to a situation where a small group of traders or institutions have an outsized influence on the price of WBTC, to the detriment of other market participants," the post reads.

To mitigate these risks, BA Labs is proposing to close all new wBTC debts and prevent new borrowing against wBTC collateral in the upcoming executive vote, while also exploring alternative solutions to expand WBTC's footprint.

"We believe that this approach would be in the best interests of MakerDAO and the broader DeFi community," the firm concluded.

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