The governance of MakerDAO has made a bold decision to modify the terms of using Wrapped Bitcoin (wBTC) as security for new loans.
The governance of MakerDAO has made a bold decision to modify the terms of using Wrapped Bitcoin (wBTC) as security for new loans. The most recent move, which stops any further borrowing using wBTC, is a reflection of growing worries around the management and security of this virtual asset.
A recent executive vote by the MakerDAO community essentially lowers the wBTC debt ceiling to 0 DAI. This implies that wBTC can not be used as collateral for any further loans. Furthermore, wBTC’s loan-to-value (LTV) ratio has been changed to 0%, therefore ending its usage in obtaining new loans.
However, as the liquidation threshold is unchanged, these modifications won’t affect currently outstanding wBTC-backed loans.
Reason Behind MakerDAO Governance Decision on wBTC
Notably, the adjustments being made by MakerDAO appear to be based on a risk analysis they recently carried out. It follows a recent announcement where BitGo said it has partnered with BiT Global, a company linked to Tron founder Justin Sun.
As part of this partnership, wBTC will be moved from the United States to many other jurisdictions, including Singapore and Hong Kong. However, Sun is a controversial figure, and his contentious background may just have alarmed MakerDAO contributors. More so, considering the possibility of greater centralization of authority over wBTC.
Meanwhile, BitGo has issued a response to some of these worries, reiterating its dedication to security.
The CEO of BitGo, Mike Belshe, stressed that strict legal monitoring and strict security measures are in place for both BitGo and BiT Global in order to protect the integrity of the assets. This was during a recent online discussion held on the X platform. Belshe also noted that Tron founder Justin Sun does not have access to the crypto custodian’s asset keys. About the issue of centralized authority, he said:
“There is no single party that has the ability to mint or steal from the underlying treasury.”
For what it’s worth, limiting loans backed by wBTC is proof of MakerDAO’s proactiveness when it comes to risk management. That is, as the community seeks to reduce any potential issues that may arise from modifications in the risk parameters connected with wBTC.
Increasing Scrutiny of Custody Services
The recent move by MakerDAO is undoubtedly related to the growing scrutiny of digital asset custodians. It also shows the importance of maintaining high-standard security measures within the decentralized finance (DeFi) space.
In view of this, MakerDAO’s governance continues to focus on the stability and security of its ecosystem. This is so as to make sure that all collateral used in its lending protocols meets the highest regulatory standards.
Existing wBTC-backed loans will remain unaffected. However, halting the use of wBTC as collateral for new loans remains a major policy change for MakerDAO.
Interestingly, there is a likelihood that this new development influences how other DeFi platforms approach similar security and custodial concerns. Thereby setting an example for future governance decisions in the space.
next