BitGo adjusts WBTC custody operations after outcry – What changed?

As a seasoned analyst with over two decades of experience in the financial industry, I have seen numerous changes and updates in the digital asset space. The revised WBTC custody operations model by BitGo is a testament to the dynamic nature of this sector, where feedback and concerns are taken seriously and acted upon.

BitGo is proposing a fresh approach for the storage of their planned Wrapped Bitcoin (WBTC). This new strategy aims to alleviate the risks that were discussed during a previous consultation in X Spaces.

The creator, known only as Meow, who launched the Solana-backed Jupiter exchange anonymously, expressed approval for the recent update. To be precise, he stated that he feels ‘pleased’ with the modifications made to the system.

After reconsidering their space strategy, they revised their plans so that Bitgo Singapore would now be responsible for holding the backup key. This change is less radical compared to the present situation, resolves the main point of contention, and aligns better with their goal of having a multi-jurisdictional setup.

In simpler terms, Justin Sun’s company had increased authority over the operation, which included backup access to cold storage Bitcoin (BTC) for Wrapped Bitcoin (WBTC).

Multiple users, such as Meow, raised issues regarding Sun’s ability to access the cold storage backups of the collateral assets, expressing their worries and concerns.

What changed in the new WBTC custody model?

For perspective, the current model has a single location in the USA and all 3 master keys within the U.S. It also includes 2 out of 3 cold-storage multi-sig wallets.

Originally, the controversial plan featuring Bit Global incorporated three regions (United States, Hong Kong, and Singapore) and two institutions. The primary key storage was to be housed in these respective locations.

In a multi-signature cold storage wallet setup, the responsibility for controlling two keys fell on Sun’s BiT Global, whereas BitGo was entrusted with securing just a single key.

The revised model will be across three locations and three institutions. The firms will be BitGo Inc., BitGo Singapore, and BiT Global. Each firm will control each key for 2 out of 3 multi-sig cold storage wallet. Additionally, the master keys will be located in the U.S, Hong Kong, and Singapore.

With the updated system in place, BitGo retains enhanced authority over the retrieval of WBTC collateral, thereby mitigating significant risks that were previously highlighted.

Nevertheless, the WBTC custody saga has ignited more players to jump into the wrapped BTC space, with Coinbase unveiling its cbBTC.

Based on the statements made by Arthur Cheong, the founder of DeFiance Capital – a venture capital firm focused on cryptocurrency, there’s an expectation that an increase in wrapped Bitcoin (BTC) products could be introduced into the market within the next 6 to 12 months.

In the upcoming six to twelve months, it’s anticipated that at least $20 billion worth of total value locked (TVL) will flow into the DeFi ecosystem from different types of wrapped or bridged Bitcoin. Notable examples include cbBTC from Coinbase and tBTC from Threshold Network.

2024-08-17 06:15

What changed in the new WBTC custody model?

Read More