When issuing a token, the market primarily demands consistency. BitGo’s tokenized Bitcoin (WBTC ($90,711.00)) have historically embodied this trait. However, BitGo is now changing its model—and the backlash has been significant.

„Wrapped Bitcoin“ (WBTC) from BitGo is indispensable in the DeFi ecosystem.

BitGo transforms real, hard bitcoins in a secure wallet into ERC tokens on Ethereum. These tokens, WBTC, have been in circulation since the end of 2018, now totaling 153,000 WBTC, equivalent to around eight billion euros.

With WBTC, one can exchange, collateralize, lend, and earn interest on Bitcoin in the decentralized finance (DeFi) ecosystem. Bitcoin can also be transported for free and in real-time across various rollups and sidechains. Apart from needing to trust BitGo, WBTC serves as the perfect „Layer-2“ (something Lightning never quite managed to be), enriching an ecosystem that often deals with dubious and unstable tokens.

However, BitGo is set to make some changes, and not everyone is pleased. A month ago, the San Francisco-based company published a blog post, presumably without anticipating the ensuing uproar.

WBTC Goes Multi-Jurisdictional

On the blog, BitGo announced plans to „move WBTC to a multi-jurisdictional custody to accelerate its global expansion plan.“

BitGo is partnering with BiT Global, a Hong Kong-registered crypto custodian. Part of this partnership involves holding the bitcoins backing WBTC not only in the USA but also in Hong Kong and Singapore.

Sounds good until you read this: BiT Global is described as „a strategic partnership between BitGo, Justin Sun, and the Tron ecosystem.“ According to the post, Tron is the „leading blockchain“ where most Tether (USDT ($1.00)) transactions occur. This phrasing makes it sound like Justin Sun has now also acquired BitGo.

For context, Justin Sun is the founder of the Tron blockchain. He has astutely invested proceeds from the ICO, amassing a substantial fortune. After fleeing China, he enthusiastically purchased various startups, including the New York-based exchange Poloniex and possibly the former Chinese exchange Huobi, along with BitTorrent—the company behind the decentralized file-sharing network—and the Steem platform. Has he now also landed an undercover investment in BitGo?

Plausible on the Surface

On the surface, the partnership makes sense. If BitGo aligns more closely with Tron, it could benefit from the Tether liquidity on this blockchain through automated decentralized swaps. This would be a grand method for improving Bitcoin-dollar conversions.

Additionally, decentralizing Bitcoin custody makes sense. The current reliance on the USA is significant. Having a foothold in multiple jurisdictions could allow bitcoin storage to the extent that seizure from a single location becomes impossible.

The upgrade will be completed in 60 days, according to the post, which would roughly equate to around a month from today.

Distrust in Justin Sun

The community reacted with some consternation. „Everything was fine,“ one person expressed on Twitter, „until you read that Justin Sun is the strategic partner in this move.“

Justin Sun is not only known as the Tron founder and investor in startups, tokens, and NFTs. He also has a reputation for bending rules. He has been accused of misusing reserves at Poloniex and initiating a questionable stablecoin swap on Huobi.

Justin Sun also has a history with stablecoins. He released the USDD ($1.00) stablecoin on Tron, criticized for lack of transparency and improper reserve management, leading some exchanges to delist it. Moreover, the stUSD on Tron, which could be staked, encountered significant issues behind the scenes, as detailed in this post.

While none of this is proven, the stench lingers. Thus, Justin Sun, actually an astute businessman, bold entrepreneur, and savvy investor, becomes a liability for WBTC—an element that erodes, rather than builds, the vital trust.

The consequences were quickly visible in the DeFi ecosystem.

MakerDAO Highly Skeptical

As early as August 10, a discussion began in the MakerDAO community forum, the issuer of the DAI ($1.00) stablecoin, regarding BitGo’s move.

Given the scenario, one might assume, someone cautioned, that Justin Sun would exert significant influence or control over WBTC reserves. In light of Justin Sun’s dubious history with reserves associated with USDD, skepticism is warranted.

Thus, it was proposed to consider WBTC as a risky reserve asset for the DAI dollar. The vault’s „Debt Ceiling“ should be capped at zero so that it would no longer be possible to create DAI dollars through WBTC tokens.

If BitGo or other involved parties do not convincingly demonstrate that WBTC remains secure despite everything, further measures should be prepared—including a complete offboarding of WBTC, i.e., entirely removing the tokens.

The proposal was put to a vote in the DAO and was approved on August 12. This seems somewhat rushed, as WBTC had been a useful counterbalance to the stablecoins in the DAO’s vaults.

By that time, however, the drama surrounding WBTC had already escalated.

Coinbase Introduces Its Own Bitcoin Token

On that day, Coinbase, the major US exchange, announced the issuance of its own tokenized dollar: cbBTC. Like WBTC, cbBTC is backed 1:1 by bitcoins held in Coinbase wallets.

Today, on September 12, cbBTC went live. So far, there are between 1,000 and 1,100 cbBTC on the Ethereum blockchain and the Base rollup. Without a doubt, Coinbase owns the bitcoins behind these tokens. However, unlike WBTC, users cannot fully transparently review these assets. It is not publicly verifiable whether Coinbase might have double-counted bitcoins entrusted by customers to the exchange.

With the release of „Coinbase Wrapped Bitcoin,“ it becomes apparent: The war of tokenized stablecoins on various blockchains has begun. The change in WBTC’s model appears to have been a catalyst.

Threshold Network Wants to Take Over WBTC

In addition to centralized Bitcoin tokens from BitGo and Coinbase, there are also decentralized alternatives. One is issued by the Threshold Network, which decentralizes the custody of the bitcoins backing the tokens via specialized nodes.

With a total of 11,202 tokenized bitcoins, Threshold is only a fraction of WBTC’s size—but still significant.

In the Threshold forum, the community is also discussing WBTC’s move. Here too, Justin Sun’s involvement is viewed as a red flag. Hence, it’s proposed to merge WBTC with Threshold’s tBTC. The „centralized trust model and merchant-based mint and burn model of WBTC“ would be replaced by a „decentralized trust and a permissionless minting mechanism.“

BitGo would, as I understand it, become an actor within the DAO. As compensation, the company should become the largest holder of Threshold tokens, abbreviated simply as „T,“ by increasing the total supply by 15 percent.

However, whether this is realistic technically and whether a forum can or should vote on what a company like BitGo does is, of course, another question.