One of the ongoing challenges Ethereum has faced is how to bring Bitcoin onto its network in a decentralized manner. Due to the characteristics of the Bitcoin network, there isn’t a fully decentralized solution yet, although the new DeFi movement on the Bitcoin network might bring that possibility closer. These are technical solutions that Ethereum could eventually adopt, but they are still a long way off. Until now, WBTC has been the most widely used implementation of Bitcoin on Ethereum, though this leadership might be in question at this point.

Currently, around 9 billion are being held in custody by the WBTC network.

To provide some context, we are attaching a chart of the current major Bitcoin holders, including the recent ETFs. WBTC would currently be in the 11th position in this ranking

What has happened for MakerDAO to start delisting this asset from its platform?

Why does it consider it necessary to mitigate risks? This vote has ultimately been successful, and the protocol has already executed these initial actions, including no longer allowing WBTC to be used within MakerDAO

Crypto Plaza Delegate has support this votation

MonetSupply explains the new situation that triggers this scenario excellently.

“ Yesterday on 9 August, Bitgo announced 129 it is planning to transfer control of the WBTC product to a joint venture with BiT Global. This will result in custody being split across multiple jurisdictions including Hong Kong and Singapore, compared with current US based custody. Bitgo has disclosed that this change implements a partnership with Justin Sun and the Tron ecosystem; as such we can infer that Justin Sun will have significant influence or control over the joint venture managing WBTC. This change in control is expected to take place in 60 days

This bears some similarity to the previous situation concerning control of the TUSD stablecoin, which was discussed in the Maker forum here. Since TUSD was placed into Justin Sun’s control, it has seen market deterioration in operational processes and transparency, including the resignation of the previous management team, suspension of real time proof of reserves, and several significant depegs caused by interruptions in redemption service. We have also seen other Sun affiliated projects show worrying signs of possible misappropriation, such as the substitution of Huobi’s USDT reserves with stUSDT, a Sun controlled RWA project that purports to hold a reserve of US treasury bills but has not provided clear audits or evidence that the backing exists. On the whole, we find that Sun’s involvement as a controlling interest in the new WBTC joint venture presents an unacceptable level of risk.”

Why is Bitgo taking this step to give up part of this business? The most rational explanation is that it's not a profitable business as it was originally designed. The redemption or minting fees are too marginal to justify the effort of custody. In reality, if Bitgo didn't have other types of custody services where they charge an annual fee, this service would have likely led the company to bankruptcy.

This should lead us to a first conclusion: regardless of the current situation, at some point, we would inevitably have to face this problem and start seeking alternatives to modify its conditions.

It's not an easy decision for MakerDAO, given that Bitcoin is probably the most important asset after Ethereum for a lending protocol. Currently, around 500 million are deposited in the protocol, which represents a significant risk for a protocol with a market cap of 1.9 billion. It generates 12 million a year, which is about 10% of its annual profits

The protocol can currently manage issues with assets of this liquidity, as it holds 70 million dollars. This would prevent the need to sell MKRs, which, in such a scenario—as seen in the only incident the protocol has faced—would decrease in price and therefore provide a smaller financial cushion.

However, the question many people are now asking is whether they should sell their WBTC for an alternative or transfer them directly to the Bitcoin network. The rational answer is to reduce exposure because, even though the risk is small, it is not compensated. We might think it’s a marginal issue and that we're being overly conservative, but if we analyze it objectively, it's something we should indeed consider.

In the scenario of simply holding those WBTC, directly holding the asset is a much less risky option. The risk we take in this scenario, especially when we see that there are already reasonable doubts from protocols like MakerDAO, is not adequately compensated.

In a scenario where we are leveraged in the asset, the decision becomes more complicated because deleveraging would reduce our exposure. However, we could manage that exposure with protocols like dYdX while this uncertainty is resolved. We would need to pay the funding rate, but we could even leverage ourselves in a much more agile manner.

In a scenario where we are earning returns on the asset, which are usually low in any case, it might make sense to explore alternatives in DeFi on Bitcoin that could use other types of Bitcoin implementations that don’t have these doubts. Although it’s true that these implementations are still in an early stage. We could also consider moving to USDC, as in a situation with issues surrounding WBTC, we might expect volatility in the asset and potential drops that we could take advantage of to buy.

These uncertainties surrounding this move will likely be resolved over time. However, let's not forget that major crashes often begin with doubts that initially seem unfounded.

These events then unfold so violently that it's only at this early stage when there is an option to exit.