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.
88% approval but only 13 wallets voted. tell me again how defi governance is decentralized
13 whales deciding the fate of $61M in collateral. thats not governance, thats an oligarchy with extra steps
13 wallets voting on $61.38M in collateral is indefensible. sparkLend had barely any WBTC compared to Aave but the precedent of whale capture is identical
governancenerd 13 wallets deciding 61M in collateral is oligarchy with extra steps and you are 100% right
gov the real issue isnt that 13 wallets decided, its that 108,689 MKR were allocated but most holders didnt bother voting. apathy is the bigger governance failure
justin sun involvement in anything is an automatic red flag. BA Labs made the right call flagging this risk
aave following suit on wbtc exposure tells you the entire defi space agreed on justin sun risk. when sky and aave align, pay attention
Fatima the BiT Global joint venture with Justin Sun wasnt just a red flag, it was a structural change to WBTC custody that nobody voted on. BA Labs flagged it within 48 hours
custody_matters exactly right. the BitGo joint venture with BiT Global wasnt disclosed until BA Labs dug into it. changing custody structure without a governance vote is the real issue here
BA Labs flagged the BitGo BiT Global deal weeks before the vote. changing custody structure without telling anyone is the exact pattern Justin Sun uses everywhere
custody_matters BA Labs flagged the BiT Global custody change within 48 hours and it still took weeks for the vote to happen. the response time on structural risk is too slow for DeFi
custody_matters BA Labs flagging the BiT Global custody change within 48 hours while most of DeFi was asleep is why risk teams matter. the Justin Sun connection was visible on-chain before the vote
88% approval with zero votes against is actually wild. try getting 88% of any DAO to agree on anything today. the justin sun risk really was that universal
the 8 week wind down from oct 3 to nov 28 was professional. gave everyone time to unwind without triggering cascading liquidations. aave moved slower but got there
the 8 week wind down oct 3 to nov 28 was smart. gave market time to reposition instead of forcing $61M in liquidations over a weekend
oct 3 to nov 28 wind down schedule was actually well designed. gradual instead of a fire sale
zero votes cast against the proposal. when 13 whales unanimously agree justin sun is toxic, you know the risk assessment is not even debatable
206850 zero votes against is wild. 13 whales looked at justin sun exposure and said absolutely not. unanimous risk rejection
zero votes against. when was the last time you saw unanimous governance on anything in defi. the justin sun risk was that obvious
mkr_whisperer 13 wallets deciding for everyone is not unanimous agreement, its governance capture. the vote was correct but the process is broken
the wind-down from oct 3 to nov 28 was smart. gave people time to unwind positions without a fire sale. aave should have moved faster though
Lior K. Aave had exposure across multiple markets so unwinding was inherently messier. Sky only had WBTC in one SparkLend market. not comparable situations
the 8 week wind down from oct 3 to nov 28 gave everyone time to exit cleanly. compare that to the iron bank collapse where positions just got liquidated overnight
13 whales decided the fate of 61M in WBTC collateral. 88% approval sounds democratic until you realize barely 100k MKR even voted
governance_whale_ 13 whales deciding 61M in WBTC collateral fate with 88% approval shows how concentrated MKR voting actually is. 100k MKR deciding a 61M risk parameter is wild