- The issues with WBTC custody remain after the revelation that BiT Global will have more control.
- Coinbase has taken a step further to challenge BitGo by unveiling a WBTC alternative.
Justin Sun’s involvement in WBTC’s custody and the resulting trust islawsuits filed by some community members have attracted other people Bitcoin [BTC] derivatives challengers.
Coinbase is the latest to unveil a competing alternative, CbBTC.
Many users have expressed concerns about the transfer of WBTC custody from BitGo to Justin Sun’s firm BiT Global.
With other DeFi players like Maker threatening to delist WBTC from their collateral, other challengers like Coinbase appear poised to capitalize on Justin Sun’s woes.
Response to Coinbase’s cbBTC
For perspective, wrapped BTC is a crucial collateral instrument within the overall DeFi system. It improves the liquidity of BTC, especially within the robust Ethereum DeFi ecosystem.
They are held 1:1 with BTC, meaning the issuing entity must hold equivalent BTC as collateral.
This would also apply to cbBTC.
Nevertheless, the community has welcomed Coinbase’s challenge to WBTC dominance. Commenting on the update, market commentator Adam Cochran said accused BitGo for the clumsy WBTC dominance, saying:
“BitGo’s partnership with Justin Sun for wBTC is about to go down as one of the top 5 fumbles in crypto history.”
The same sentiment was echoed by another user, who declared,
“This week could mark the turning point as BitGo went from the market-dominating BTC derivative, with a market cap of $9.3 billion, securing several billions in loans within DeFi, to a very rapid decline.”
However, BitGo CEO Mike Belshe responded to Coinbase’s move, calling the company “Central bank BTC.”
Put another way, Belshe’s criticism meant that Coinbase is highly regulated, and the same would happen to cbBTC. As a result, any restriction or confiscation would impact the BTC derivative.
According to Belshe, this was the problem BitGo was trying to solve with the BiT Global partnership. The plan, which will take effect after 60 days, was to allow WBTC custody in multiple jurisdictions.
However, in a recent one X spaces afterBelshe revealed that BiT Global would have access to two of the three multisig keys for WBTC custody operations, including cold storage backup.
This meant that Sun’s company would have greater control over its custody operations.
The community in particular had a problem with the arrangement Meowthe pseudonymous founder of Jupiter Exchange and one of the co-founders of WBTC.
“Yes, this is now my main argument.”
As a result of the disputes, some even claimed that WBTC could be settled before the 60-day notice period.
It remains to be seen how quickly Coinbase’s alternative will gain traction after the successful launch of Base and recently expansion to Hawaii.
Risky side of packaged BTC products
Nevertheless, as most wrapped BTCs are centrally controlled, says crypto analyst Marty Party claimed they all involve market risk.
“Once more. Permissioned Bridges and Wrapped native tokens are not secure, not Web3 and should be avoided at all costs.”
The Party proposed adopting permissionless wrapped derivatives to avoid the trust issues seen in the WBTC custody saga.
Whether Coinbase will iterate on its upcoming wrapped BTC product to mitigate centralization risk remains to be seen.