Posted August 14, 2024 at 7:29 pm EST.
Digital asset custodian BitGo announced on Wednesday changes to its security model for wrapped bitcoin (WBTC) following community pushback in an X Spaces discussion on Tuesday evening. The changes entailed diversifying the number of parties possessing the keys to the multi-signature wallet holding the bitcoins backing WBTC, which is a tokenized representation of BTC on other blockchain networks such as Ethereum.
On Aug. 9, BitGo, the custodian of wrapped bitcoin, started a 60-day transitional period to diversify its custodial operations via a joint venture with Hong Kong-based custody platform BiT Global. In its post, BitGo called the joint venture a “strategic partnership” between BitGo, TRON founder Justin Sun, and the TRON ecosystem.
The diversification included changes in who will hold the keys to the multi-signature wallet that contains the bitcoin backing WBTC. The WBTC multi-sig wallet has three keys and two are needed to sign a transaction, BitGo CEO Mike Belshe said in Tuesday’s Spaces discussion. Also participating in the talk were TRON’s Sun and a co-founder of decentralized exchange Jupiter and a member of WBTC’s founding team who goes by the name “Meow.”
Read More: Aave DAO’s Chaos Labs Says ‘Risk-Off’ Recommendation for WBTC ‘Premature’
BitGo currently holds all three keys, and an initial proposal would have left one of those keys with BitGo and the other two — one a cold storage key and the other a backup key — going to BiT Global, per Belshe.
However, many in the community opposed the proposal, especially since BiT Global is a relatively new entity. One X user who goes by @Nasmithan said, “I don’t understand how it’s better with BiT Global having enough keys to sign by themselves with a main + backup key,” while another with the screenname @gphummer wrote, “The concerns around 2 of the 3 keys being accessible by BiT Global aren’t being addressed at all. Huge red flag.”
For his part, Meow said in the Spaces discussion that “from the outside looking in, there’s actually no way to ascertain how good the processes are for BiT Global in terms of custody and management.”
New Signers
In response to the criticism, BitGo announced a new model on Wednesday morning. BitGo Inc. in the U.S., BiT Global in Hong Kong, and BitGo Singapore Ltd. will now each hold one key. “The new multi-jurisdictional, multi-institutional model shares the same proven underlying cold-storage multi-sig security technology, the same Trust Company operational playbook, the same physical vault requirements, and the same geographic key distribution,” the BitGo team said. “However, we’re now able to add a 3rd institution into the mix, enhancing security and reducing risk.”
On his own X account, BitGo’s Belshe wrote that “last night’s community meeting was incredibly helpful. As a result, we’re going to further split controls across more entities to reduce risk, increase safety, and increase decentralization.”
Read More: MakerDAO Considers Offboarding WBTC as BitGo Plans Custody Changes
Still Some Resistance
Torgin Mackinga, a security engineer at ChainSecurity, told Unchained over Telegram, “It’s…worth noting that any change brings risk compared to leaving wBTC custody and processes as they were before, which seems to have worked well for a long time.”
Even though BitGo previously held all three keys, Meow noted on the Spaces discussion that “people trust BitGo.” BitGo has been operating since 2013 and in 2018, the firm announced it would be rolling out WBTC as a means of creating more liquidity for the decentralized finance industry.
Furthermore, some in the space don’t see the inclusion of an additional party to WBTC’s multi-sig wallet as a substantial improvement. “What really matters isn’t how many new signers you add, what matters is whether BiT Global and @JustinSunTron are a majority shareholder in the new venture. If they are, they can simply change the rules at any time,” Luke Youngblood, a founding member of Moonwell, a lending protocol on Coinbase’s incubated L2 Base, wrote on X.
According to its Aug. 9 post, BitGo will be a minority shareholder in the joint venture, implying that BitGlobal and Sun will together have majority control.
Sun is a controversial figure in crypto circles for the perceived lack of transparency on previous projects of his, and he was sued by the SEC in 2023 for selling unregistered securities related to the sale and promotion of Tron (TRX) and BitTorrent (BTT) tokens. The SEC also charged Sun and his companies with manipulating the secondary market for TRX through the use of wash trading.
As a result, Sun’s involvement in the joint venture with BitGo has come under scrutiny, with Maker DAO’s risk management team even proposing a halt to new borrowing against WBTC collateral on Maker’s governance forum.
In response, BitGo’s Belshe said the proposal seemed to be “more a reaction to the Justin Sun name than to facts” and emphasized that Sun “won’t actually have the ability to move any funds arbitrarily.”
Sun responded as well on X on Aug. 10, writing that “my personal involvement in WBTC is entirely strategic. I do not control the private keys to the WBTC reserves and cannot move any BTC reserves.”
Omer Arie Goldberg, the CEO of risk management firm Chaos Labs, told Unchained that his firm is actively working with the BitGo team and large holders of WBTC to get additional information on the new signature holders.
“Once we have all of that, then we can make an informed decision and give a recommendation on whether or not the risk exposure has actually increased,” Goldberg said.
Growing Competition
BitGo’s announcement comes as the competition for alternative tokenized versions of BTC is ramping up. On Tuesday, Coinbase teased the launch of their own version of wrapped BTC, while restaking protocol Symbiotic rolled out ERC-20 implementations of Bitcoin.
Symbiotic said its new implementations of Bitcoin were not connected to BitGo’s recent moves. “We’ve just received a lot of interest from Bitcoin projects basically,” wrote Felix Lutsch, head of ecosystem for Symbiotic, in a Telegram message to Unchained.
Andrew Van Aken, a data scientist at Artemis, told Unchained via Telegram that “[launching alternatives to WBTC] is a great opportunity for these companies to get out in front of pending BTC Layer 2 launches. With so much Bitcoin unable to get yields via DeFi or other mechanisms, the coming Layer 2 launches could possibly suck a bunch of bitcoin into their ecosystems.”
At press time, WBTC was the 14th largest cryptocurrency by market cap at $9.1 billion, ahead of AVAX and SHIB, data from CoinGecko shows.
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