Bitcoin decentralized finance protocol Threshold Network has proposed a partnership with BitGo to save Wrapped Bitcoin (WBTC). In a proposal submitted on August 30, MacLane Wilkison wants to transition WBTC from its current centralized custody to Threshold’s decentralized system.
The proposal follows recent controversies about BitGo’s plan to adopt a multijurisdictional WBTC custody and transfer WBTC control to a joint venture. The plan faced resistance from the DeFi community due to Justin Sun’s involvement in the joint venture.
Merger of tBTC and WBTC
According to Wilkinson, this proposal will address concerns about WBTC’s future. Under the plan, WBTC minting will change to a decentralized and permissionless system with BitGo and Threshold as partners. BitGo will have full minting/redemption privileges, while Threshold Decentralized Autonomous Organization (DAO) will take over governance of WBTC from the WBTC DAO.
If approved, the proposal will also mark the end of tBTC, as its existing supply will be merged with that of WBTC through a 1:1 token swap. After that, WBTC’s total value locked will migrate to Threshold decentralized custody.
Wilkinson explained that such a proposal will combine the capabilities of both WBTC and tBTC to create a better product, describing it as a better alternative than the partnership with BitGlobal
He said:
“Combining WBTC’s user base, integrations, liquidity, and brand recognition with tBTC’s decentralized custody and permissionless bridging mechanism can better achieve BitGo’s stated objective of multijurisdictional and multiinstitutional custody.”
Meanwhile, the proposal includes a fallback plan if BitGo declines the offer and proceeds with the joint venture custody. In that case, Threshold Network wants to position itself as the safe alternative for WBTC and attract DeFi market participants to its product.
Threshold proposal might save WBTC
Threshold believes its proposal will benefit the DeFi ecosystem by allowing WBTC to remain operational without the risks currently worrying market participants. In return, BitGo will become the largest holder of the Threshold token T, as the network plans to mint an additional 15% of its token supply worth $36,415,500.
Many crypto community members have praised the proposal, noting that it could save the asset and allow its continuous use in the DeFi sector.
WBTC is one of the major collateral assets in the DeFi ecosystem. However, its use is currently under question as many DeFi protocols, including MakerDAO and Aave, are reducing exposure to the asset and observing the situation.
The latest crypto project to reduce exposure to WBTC is the HAI protocol. Its DAO recently announced the closure of WBTC vaults. To encourage users to remove their capital from the vaults, the protocol has increased its stability fees to 25%, with a plan to increase the fee to 100% if users do not remove their capital on time.
There is no indication that Threshold Network has communicated the proposal to BitGo, given that it is still in the discussion phase on its forum. With many community members in support, the interest may progress to a governance proposal and a formal offer to BitGo in the coming days.
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