Bitcoin DeFi protocol Threshold proposes tBTC merger to 'save' WBTC

Bitcoin BTC +0.32% -focused decentralized finance protocol Threshold is proposing a merger with WBTC, the largest “wrapped” version of bitcoin by a country mile. 

Under the plan, BitGo would become “the largest holder” of Threshold’s T token while also transferring control over the WBTC mint and burn mechanism to “ensure the continued stability of WBTC, the sanctity of its collateral, and the safety of the users and protocols that rely on it.”

The move comes weeks after crypto custodian BitGo, which currently manages the underlying BTC behind WBTC, drew criticism and skepticism from wide swaths of the crypto industry when announcing a plan to transfer partial control of those assets to a joint venture with Justin Sun’s BiT Global. 

In response to the supposed BitGo-Sun arrangement, several protocols that use WBTC — an ERC-20 token representing Bitcoin on the Ethereum blockchain — as collateral or for trading announced they are considering offboarding the asset. A recent MakerDAO governance vote to disable further WBTC borrowing was ratified while crypto lender Aave will “continuously monitor the situation.”

Over the years, there have been concerns about the transparency and backing of several Justin Sun-related projects. The Tron-related USDD stablecoin, for instance, recently shed bitcoin as a reserve asset without community buy-in while Protos reported HTX (formerly Huobi), which is advised by Sun, replaced its USDT holdings with Sun-connected stUSDT .

Threshold Network is a decentralized platform that connects bitcoin to DeFi via a number of services, including its own wrapped version of bitcoin, tBTC, and cross-chain token protocol Wormhole that’s connected to around 20 blockchains. It was created by merging two similar protocols, NuCypher and Keep Network, in 2022.

'Alternative approach would ensure the safety and stability'

If the proposal submitted by NuCypher co-founder MacLane Wilkison is approved, Threshold would mint an additional 1,655,250,000 T tokens — increasing the supply by 15%, or about $36 million — which would then be vested with BitGo. BitGo would then transfer token freezing and mint/redeem privileges for WBTC to the Threshold DAO.

Threshold would also maintain custody of the bitcoin across multiple wallets and disable minting of tBTC, which would be redeemable for 1:1 WBTC. WBTC has a market capitalization of around $9 billion, while some $200 million in tBTC is in circulation.

“This alternative approach would ensure the safety and stability of the underlying collateral, reassure market participants and users of WBTC, and protect the many DeFi protocols that have significant exposure to the asset as collateral,” Wilkison said. 

It is unclear whether Threshold floated the idea before BitGo before publication. BitGo CEO Mike Belshe has pushed back against fears that Justin Sun’s involvement in WBTC would alter its risk profile. Belshe argued the plan would further decentralize WBTC through multi-jurisdictional and multi-institutional custody. 

Wilkison said if the proposal is rejected, Threshold could still mint the additional T tokens to help defer the costs of protocols switching to assets like tBTC or Coinbase’s proposed cbBTC token.