- WBTC custody woes persist after revelation that BiT Global will have more control.
Coinbase has stepped up to challenge BitGo by unveiling a WBTC alternative.
As a seasoned crypto investor with years of experience navigating the volatile and ever-changing landscape of digital assets, I find myself cautiously optimistic about the latest developments surrounding wrapped Bitcoin (WBTC). On one hand, Coinbase’s entry into the WBTC market with cbBTC presents an intriguing opportunity for increased competition and potential innovation. However, the ongoing custody woes associated with WBTC, as exemplified by Justin Sun’s involvement and BitGo’s perceived missteps, are a cause for concern.
Discussions about Justin Sun’s role in managing Wrapped Bitcoin (WBTC) and the concerns from some community members regarding this have caught the attention of competitors aiming to rival wrapped BTC derivatives, due to these matters.
Coinbase is the latest to unveil a competing alternative, CbBTC.
A significant number of users have expressed apprehensions regarding the transition of stewardship over WBTC from BitGo to Justin Sun’s company, BiT Global.
In the face of DeFi platforms such as Maker potentially removing Wrapped Bitcoin (WBTC) from their collateral options, other competitors like Coinbase appear poised to exploit the difficulties faced by Justin Sun.
Reaction to Coinbase’s cbBTC
To provide some context, wrapping Bitcoin (BTC) serves as an essential tool in the broader Decentralized Finance (DeFi) framework. This process increases the liquidity of BTC, particularly within the vigorous Ethereum DeFi environment. In simpler terms, it makes more Bitcoin available for use within these decentralized financial systems.
They are held 1:1 with BTC, meaning the issuing entity must hold equivalent BTC as collateral.
That would apply to cbBTC, too.
Despite this, the community has embraced Coinbase’s attempt to dethrone Wrapped Bitcoin’s (WBTC) market dominance. In response to the news, market commentator Adam Cochran criticized BitGo for losing WBTC’s dominance, asserting that they had dropped the ball.
“The partnership between BitGo and Justin Sun for wBTC might soon be remembered as one of the most notable blunders in the history of cryptocurrency.”
The same sentiment was echoed by another user, who stated,
“This week could signal a significant shift for BitGo, moving it from being the leading Bitcoin derivative with a market capitalization of $9.3 billion and lending out billions more across DeFi, towards a swift downfall.”
Nevertheless, Mike Belshe, CEO of BitGo, criticized Coinbase’s action, labeling the company as “Bitcoin operated by a Central Bank.”
In simpler terms, Belshe’s critique implies that since Coinbase is heavily regulated, the same applies to cbBTC. This means that any restrictions or seizures would impact the Bitcoin derivative (cbBTC).
As stated by Belshe, BitGo aimed to address a specific issue through their partnership with BiT Global. This strategy, to take effect in 60 days, involves enabling the secure storage of Wrapped Bitcoin (WBTC) across various geographical regions.
In a more current update from X Spaces, Belshe disclosed that BiT Global is granted control over two out of the three multi-signature keys for WBTC safekeeping activities. This includes a backup for cold storage.
This meant that Sun’s firm would have more control over custody operations.
Within the community, there was a disagreement concerning the setup, with particular dissent coming from Meow, a pseudonymous figure known as the founder of Jupiter Exchange, and one of the original founders of WBTC.
“Yes, this is my main contention now.”
Due to the disputes, some individuals predicted that WBTC might undergo unwinding processes prior to the 60-day notification period.
As an analyst, I’m eagerly watching to find out how swiftly our new offering from Coinbase will pick up momentum following the successful debut of ‘Base’ and its recent expansion into Hawaii. The pace at which it gains popularity is yet to be determined.
Risky side of wrapped BTC products
Despite the fact that many Bitcoin transactions are centralized, crypto analyst Marty Party argues that this centralization introduces market risk for all of them.
“It’s important to note that Permissioned Bridges and Wrapped Native Tokens aren’t secure, they don’t align with the principles of Web3, and it’s best to steer clear of them entirely.”
As an analyst, I propose adopting permissionless wrapped derivatives as a solution to circumvent the trust concerns arising from the WBTC custody debacle. This approach aims to provide a more transparent and decentralized method for managing these digital assets.
It’s yet uncertain if Coinbase will adapt its forthcoming wrapped Bitcoin product to reduce potential centralization issues.
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2024-08-14 20:13