Sky Protocol Votes to Remove Wrapped Bitcoin as Collateral in Landmark DeFi Governance Decision

In one of the most consequential decentralized finance governance decisions of 2024, Sky — the protocol formerly known as MakerDAO — has officially voted to remove Wrapped Bitcoin (WBTC) as a collateral option across its lending ecosystem. The three-day governance poll concluded on September 19, with an overwhelming 88.17% of participating MKR tokens supporting the proposal to fully offboard WBTC exposure from the platform.

TL;DR

• Sky (formerly MakerDAO) passes governance vote to remove WBTC as collateral, with 88.17% approval from MKR holders
• The decision affects $61.38 million in WBTC-backed collateralized debts managed through SparkLend
• Concerns center on BitGo’s partnership with a BiT Global-affiliated company tied to Justin Sun
• Gradual WBTC wind-down scheduled from October 3 through November 28
• Aave is simultaneously pursuing similar WBTC exposure reductions

The vote saw 95,826 MKR tokens pledged in favor of the removal plan out of 108,689 total tokens allocated, with the remaining 11.83% abstaining and zero votes cast against the proposal. Notably, only 13 large MKR holders — often referred to as whales — participated in the decision, raising questions about governance concentration in one of DeFi’s oldest and most established protocols.

The Justin Sun Connection

The catalyst for this decisive action traces back to August 2024, when BitGo — the custodian responsible for holding the Bitcoin backing WBTC tokens — announced a multi-jurisdictional custody model that included a joint venture with BiT Global. The announcement immediately raised red flags across the DeFi community due to BiT Global’s affiliation with Justin Sun, the controversial founder of the TRON ecosystem.

BA Labs, formerly the Risk Core Unit within the Maker ecosystem and now serving as stability advisor, flagged the partnership as a significant counterparty risk. Their analysis pointed to the removal of 12,000 BTC from the backing of USDD — a stablecoin tied to the TRON ecosystem — as evidence of potential instability associated with Sun-affiliated products and entities.

The concern is straightforward but serious: WBTC is only as trustworthy as the entity custodying the underlying Bitcoin. Any change in the custody arrangement that introduces uncertainty about the 1:1 backing of WBTC tokens represents a systemic risk to every DeFi protocol that accepts WBTC as collateral.

The Wind-Down Process

The removal of WBTC from the Sky ecosystem will not happen overnight. Starting October 3, SparkLend — the decentralized non-custodial liquidity protocol operated within the Sky ecosystem — will begin gradually reducing the collateral cap for WBTC. The plan includes progressively lowering the liquidation threshold and raising linear interpolation parameters to make WBTC vaults less attractive to users, effectively encouraging an orderly migration away from the asset.

According to the governance proposal, the complete wind-down was initially expected to conclude by November 14, though the timeline could extend depending on market conditions and user behavior. The $61.38 million in WBTC-backed collateralized debts — denominated primarily in DAI, one of Sky’s native stablecoins — will need to be unwound carefully to avoid triggering cascading liquidations or market disruptions.

BitGo Pushes Back

Mike Belshe, CEO of BitGo, actively campaigned against the removal of WBTC as collateral on SparkLend. In MakerDAO’s governance forum, Belshe argued that the move would disproportionately hurt retail users who might not have sufficient stablecoin reserves to remove their WBTC collateral independently. He framed the governance decision as one that would harm smaller participants while large holders could easily reposition.

Despite Belshe’s arguments, the community remained unmoved. The overwhelming margin of the vote suggests that DeFi governance participants prioritize counterparty risk mitigation over short-term user convenience — a maturation signal for the broader decentralized governance space.

Aave Follows Suit

Sky is not alone in its caution. Aave, the other dominant lending protocol in DeFi, initiated a parallel process on September 18 when LlamaRisk posted a proposal on Aave’s governance forum to reduce the loan-to-value ratio in WBTC vaults to zero while lowering supply and borrowing caps. The proposal cited the same BitGo-BiT Global custody transition as the underlying risk factor.

The simultaneous moves by the two largest DeFi lending protocols signal a broader industry reassessment of WBTC’s role as a foundational collateral asset. For years, WBTC has been the primary vehicle for bringing Bitcoin liquidity into Ethereum-based DeFi, with billions of dollars in total value locked across multiple protocols.

Why This Matters

This governance decision represents a pivotal moment for DeFi risk management and the ongoing debate about trust assumptions in decentralized systems. The willingness of major protocols to proactively sever ties with a widely-used collateral asset — despite the disruption it causes — demonstrates that decentralized governance can act decisively on risk concerns, even when the financial stakes are significant.

The move also accelerates the search for WBTC alternatives. Both Sky and Aave are evaluating Coinbase’s cbBTC and Threshold’s tBTC as potential replacements, which could reshape the competitive landscape for wrapped Bitcoin products and shift significant liquidity flows toward these newer alternatives. For DeFi users, this serves as a reminder that even the most established collateral assets are subject to governance-driven policy changes, and portfolio diversification across multiple wrapped Bitcoin variants may become the new standard for risk-aware participants.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.