Note: This was written as a reponse to the peak wBTC fears we saw in Nov 22, when widespread worries about the worthiness of all forms of centralized assets was sky high. It remains a clear explaination for the ethos and principles behind wBTC, though I do think it’s time for a new better decentralized solution to take it’s place.
As part of the founding team for wBTC and the first to ring an alarm on the risks of soBTC, I would like to explain the vast differences between the two wrapped assets, why I personally hold and trust wBTC and the key things wBTC needs to address given the extremely fearful environment.
First off, in complete contrast to the soBTC, wBTC is designed to have the gold standard of transparency for wrapped assets:
All these were done way before transparency was a hot topic, and you can see/verify all these transactions done by wBTC starting from the genesis mint on the orderbook.
The best way to understand it is simply by looking at a single mint order - For a merchant to mint wBTC, they need to transfer BTC to Bitgo, which are kept in cold storage in separate wallets from other operations.
For example, you can even see the exact sequence of events where Alameda changed the merchant BTC address, burnt 3000 wBTC to redeem it for BTC. The redemption is still pending, likely over legal concerns - so it would be great for Bitgo to provide more context there as well.
By all visible signs Bitgo has kept true to their custodian identity, and further created [one more layer of legal separation by moving control of the bitcoin to Bitgo Trust, so any issued faced by Bitgo will not affect the BTC underlying wBTC.
Lastly, wBTC was started primarily by Kyber and BitGo as a community project, and had the broad buy in from the community, with involvement with OGs like Compound, Loopring, and many ohers involved. This predicated the strong need for transparency and community involvement from day one in order to acheive community acceptance.
All these indicates is a COMPLETELY different situation from soBTC. SoBTC was created/minted/issued by Alameda early on in the Solana cycle, with ZERO oversight, proof of assets and shared responsibility from day one.
Essentially, Alameda could have minted any number and there would have been no oversight of the process.
This was in fact what happened - there’s 356M of soUSDT and a billion “worth” of soBTC and soETH that’s obviously completely worthless now, and the solana ecosystem is still in the process of purging from the DeFi ecosystem. And of course, whoever holds the key can mint even more!
The insane thing was this - most lending platforms (updated: stopped shortly after this message) was still accepting soBTC as an asset, which meant someone who owned the keys could just have simply have drained all the assets across all the platforms.
However in this case, for every single satoshi that Alameda mints, they have to physically transfer assets to Bitgo Trust, after which Bitgo will mint the wBTC. Again, you can see all the transactions happening in the orderbook.
This means that unlike in the case of soBTC, where Alameda can just declare they have a gazillion bitcoin, they actually have to transfer a BTC to Bitgo for every wBTC they want to mint! Same for every merchant - you can track every single transaction since inception.
Of course, this just addresses one part of the worry of Alameda’s involvement in wBTC, with the other major worry is whether Bitgo is a trustworthy custodian - if they have lent out the Bitcoin to others, or used assets from other clients as proof of reserves for wBTC.
In this case, I personally trust Bitgo - every transaction has been transparent since day one, and any extra wBTC minted with no incoming BTC will ring a massive alarm by all observers. I have no reason to doubt their commitment to providing the highest levels of credibility for this crucial wrappers asset.
The other area of concern is the DAO, which has a numnber of inactive and outdated members. A compromised DAO is a threat to the system, but there is no sign of compromise, just inactivity, and there are works in place to fix it.
However, there are a few important things to be improved on here, considering how deeply embedded wBTC is now in the space. The current environment is also extremely fearful, making addressing heighted concerns of very high importance.
Due to the project having worked as well as it did, there appears to be lack of clarity and communications from bitgo and the DAO prior to the crisis, with the most glaring the DAO inactivity as previously mentioned. The DAO renewal is currently being addressed), and we hope that Bitgo will share more details on their internal operations as well.
Providing more context on the pending Alameda wBTC burn will be useful both for shining light on the internal processes, and help more people understand the relationship between the merchant/custodian/DAOs. I am personally super interested in this.
Most crucially, the Alameda/FTX shitshow shows how tenuous legal lines are, where Sam and friends had free rein over all OUR assets even though Alameda and FTX were technically separate. It would be helpful for Bitgo to first start a 3rd party audit, and over the mid term create a new more transparent trust by renewing the parties who are able to minting or burn assets.
As an ecosystem, we might need to accept higher fees for wBTC (or any centralized wrap assets) in the future. Bitgo is a company after all! Security, transparency and accountability does not come for free nor cheap. We either accept the cost for those, or we end up with soBTC.
While I am extremely proud of wBTC, we never intended for it to be a permanent asset. While I believe it is the gold standard for centralized wrapped assets, decentralized solutions remain the long term answer. Those comes with their own set of issues, but I am confident that we will get there.
For example, as a centralzied system, it is technically impossible to prove that you are the only one with access to the assets. Sure, you can prove that an entity have the assets, but can you prove that only that entity have access and no one else?
It is a very tricky balance between spreading fud and sharing important information, and I totally get the need to be hyper viligant at this precarious moment in time. But sharing information that is simply wrong and poorly researched is a line we really should not cross.
For now though, in wBTC I trust.
PS: Dear Bitgo, please don’t break my fragile and tender heart. Not sure how much it can take after the brutal SBF betrayal.
