Aave DAO’s Chaos Labs Says ‘Risk-Off’ Recommendation for WBTC ‘Premature’

Aave’s Chaos Labs and Marc Zeller caution against hasty decisions on WBTC, following MakerDAO’s proposal to off-board the asset.

The Aave DAO’s risk management unit Chaos Labs kicked off a governance discussion on how to treat Wrapped Bitcoin (WBTC) as BitGo plans to split custody across multiple jurisdictions.

In a post on Aave’s governance forum, Chaos Labs said issuing a “risk-off” recommendation at this stage would be “premature” and potentially impact the protocol negatively in the long run.

Aave Chan Initiative founder Marc Zeller also addressed concerns around how Aave would treat WBTC following custody changes. In a post on X, Zeller said that no single entity would unilaterally decide the fate of collateral, especially one as valuable as WBTC.

“wBTC users are legitimate. Aave values its users. I won’t vote to rug anyone overnight,” said Zeller.

“No immediate changes for at least two months. wBTC team and alternatives are welcome to discuss.”

Chaos Labs’ and Zeller’s comments come after a proposal from MakerDAO’s risk unit BA Labs proposed off-boarding WBTC entirely in light of BitGo’s custody shake up and Tron founder Justin Sun’s involvement with the firm.

Around 10% of DAI’s token supply is backed by WBTC, according to data from Daistats. Meanwhile, there is around $900 million in debt against $2.2 billion in supplied WBTC on Aave V3 on Ethereum, and $90 million in debt against $212.99 million in supplied WBTC on Aave V3 on Arbitrum.

“The existing debt against WBTC generates approximately $6 million in annualized revenues from the reserve factor alone, with demand continuing to grow at a notable pace,” said Chaos Labs.

LlamaRisk, Aave DAO’s other risk management unit, shared an extensive report of their preliminary findings. They found that BitGo did not necessarily need a joint venture with Hong Kong-based BiT Global to expand into Singapore. They also reported that BiT Global’s TCSP license doesn’t necessarily mean it has adopted the best practices for digital asset custody.

“There are open questions about the advantageous qualities of the proposed structure and speculations about undisclosed motivations that may pose additional risks to WBTC,” said LlamaRisk.