#saveWBTC - a merger with Threshold's tBTC

Proposals
1

Proposal
Ensure the continued stability of WBTC, the sanctity of its collateral, and the safety of the users and protocols that rely on it by hot swapping the centralized custody and merchant-based mint and burn model with Threshold’s decentralized custody and permissionless mint/redeem mechanism. Make BitGo the largest holder of T via a grant by minting an additional 15% of the current fully diluted supply ($36,415,500 at today’s price).

Background
WBTC is one of the most liquid and widely adopted assets in crypto with a TVL of ~$9B and widespread integrations across DeFi and CEXes. BitGo is the trusted custody provider behind WBTC. Threshold Network’s tBTC is a permissionless and decentralized Bitcoin bridge with a TVL of ~$200M and bridge volume of >$1B since inception.

Recently, BitGo announced their plan to transfer control of the WBTC product to a joint venture with BiT Global to expand the jurisdictional and institutional custody of the underlying BTC. This announcement has proven controversial due to the involvement of Justin Sun, with many in the ecosystem, expressing concern over his “affiliated projects show worrying signs of possible misappropriation” of collateral. The most recent example being the removal of 12,000 BTC from the USDD stablecoin, as reported by Protos.

In response, major DeFi protocols have taken steps to limit or reduce their exposure to WBTC. The day after BitGo’s announcement, MakerDAO proposed to disable further WBTC borrowing (which has since been ratified) and potentially fully offboard the asset in the future. Similarly, Aave is closely monitoring the situation and is prepared to take steps “necessary to ensure the market’s safety and stability.”

There is a better way
Combining WBTC’s user base, integrations, liquidity, and brand recognition with tBTC’s decentralized custody and permissionless bridging mechanism can better achieve BitGo’s stated objective of multi-jurisdictional and multi-institutional custody.

Benefit to ecosystem
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.

Benefit to BitGo
Threshold DAO will mint an additional 15% (1,655,250,000 tokens) of the fully diluted supply (currently 11,035,000,000 tokens) with an agreed vesting schedule as a grant for BitGo via a one-off token mint. This grant is worth $36,415,500 at today’s price of $0.022/T and would make BitGo the largest stakeholder in Threshold Network while preserving the decentralized nature of the bridge.

Logistics
The token mint can be executed via an on-chain Governor Bravo proposal.

The merge can be implemented across several stages to ensure a secure and seamless transition for users, partner protocols, BitGo, and Threshold.

  • Stage 1: Threshold is given merchant (mint/redeem) privileges for WBTC and other merchants are removed. The WBTC DAO privileges (e.g. freeze function, etc.) are transferred to Threshold DAO. tBTC minting is disabled and the existing tBTC supply made redeemable 1:1 for WBTC (and remains redeemable for native BTC).

  • Stage 2: Current WBTC TVL migrates to Threshold’s decentralized custody in chunks, with deposits spread across multiple wallets to ensure forward security.

Fallback (if the offer is declined): Facilitating a safe and orderly exit from WBTC
If BitGo declines the offer and proceeds with the new custody arrangement, the DeFi ecosystem will require a safe and orderly offboarding of WBTC. In this case, the token mint can be repurposed to subsidize the costs of offboarding WBTC from the ecosystem and migration to alternatives like tBTC and cbBTC. The exact details can be deferred to Threshold’s Treasury Guild but obvious examples could include covering users’ WBTC redemption fees, subsidizing other protocols’ migration/development work, etc.

23 Likes
2

The market currently values T at ~1x TVL but, as the largest decentralized cross-chain bridge, a post-merge network would potentially trade at a premium (in comparison, Axelar trades at 2x TVL and Wormhole at 1x TVL). But assuming it stays at 1x TVL multiple, the implied post-merge T market cap is ~$9B, which is a potential token price of $0.71 and a grant value of $1,175,227,500 for BitGo.

9 Likes
3

I support this proposal.

Crypto deserves a cross-chain Bitcoin protocol that it can trust.

7 Likes
4

Is a public forum the best place for this conversation? BitGo seems open to discussing, can we take this down?

5

Why not let wBTC collapse, take their market cap, and replace them? There’s no need to involve us with Justin Sun. Compound is already looking into onboarding tBTC, and might offboard wBTC. I think this proposal is against he interests of Threshold. Plus 15% is a lot of dilution.

Personally, I think they were short on collateral going all the way back to the collapse of FTX. Shortly, after they denied SBF’s redemption, I wrote them about setting up an arbitrage trading desk. I had noticed wBTC sells for a few hundred dollar discount to BTC, and I wanted to open an account to arbitrage the price difference. I could have easily made millions of dollars closing the gap with volume. However, after the initial email they never bothered writing me back. I believe they could not handle large redemptions prior to Justin Sun’s involvement.

1 Like
6

This proposal is the opposite of involving Justin Sun.
$9B is a lot to let collapse and I doubt it would organically. This proposal IS about taking their market cap and replacing them. Also see @Mr_T 's post on impact to value of T.

5 Likes
7

I would like to see more details on the fallback plan’s use of the minted T. For example, specific conversions supported by the minted T and a time provision for burning the remainder. I understand this is early and in the hands of the Treasury Guild and I hope they can propose details on the fallback plan.

1 Like
9

How would a 15% mint affect Thresholds ability to stay affloat if we entered another bear market or recession?

10

I support this. Not much price downside from the dilution I believe. But upside could be substantial . And yes, I am interested only in T price now. Zero illusions.

3 Likes
11

Providing Bitgo a community owned alternative is an initiative I can get behind and something if Bitgo cares about their reputation, they should seriously consider.

8 Likes
12

As someone who has been extensively involved in the wrapped bitcoin ecosystem since its early stages, and who remains a major holder and liquidity provider for both WBTC and tBTC today, I must say that this proposal is very refreshing.

I’ve long had concerns of the market size taken up by a centralized wrapper. WBTC was first to market and gained significant first mover advantage, and has kept that due to inertia and problems in the “decentralized” competitors.

To my knowledge, tBTC is currently the most decentralized bitcoin wrapper, and of all choices, certainly the most liquid and stable. With a 4 year track record to show for it. With the new risk of custody to WBTC this proposal starts to make a lot of sense.

The really big point here is to be able to take advantage of all the integrations and liquidity already tied into WBTC. That is massive. While tBTC also have some integrations and are starting to add more, WBTC is still king there and it would simplify the growth phase to take that ticker on. I always thought it was a shame the name “Wrapped Bitcoin (WBTC)” belonged to centralized wrapper. This would change that and make it more akin to wrapped eth.

The TVL increase would boost morale and likely begin a positive feedback loop for Threshold Network the token. It’s also a very exciting prospect to be able to phase out the tBTC/WBTC pairs. This means we can concentrate liquidity over one single BTC pair and make the market more efficient.

This is large T mint, to be sure, but the stars align so well, the price is well worth imo.

I will support the proposal.

10 Likes
13

I certainly understand the excitement about possible price upside for T.

I am most concerned about giving so much DAO voting power to a management team that has recurrently demonstrated poor risk management, incomplete knowledge of their own industry, and questionable decision making informed by priorities that may not resonate with our DAO.

More specifically, as written, this proposal would provide the BitGo management team with 1.66 Billion T. Our Dao’s most participatory snapshots have garnered 1.3 Billion votes (there have only been 7 snapshots with more than 1 billion total votes, these are huge community decision like the tBTC v1 to v2 migration and working with Wormhole!).

At current levels of DAO governance participation, providing BitGo with 1.66 Billion T -as this proposal states- would provide BitGo with the ability to pass or reject any DAO proposal. We may caveat this with hopes of greater DAO participation although it has been several years now with similar levels of governance participation. BitGo may exchange large amounts of T and deplete their voting power but this also is not given.

It may be that BitGo, being the largest single holder of T, may be interested in T price growth. I would share similar enthusiasm about this; I want to pose to the community that BitGo’s vision of how to do this and the sustainability of ways do this may be guided by different values than those held by our community. For instance, I don’t believe at this moment we would be able to stop them from recognizing how cornered the market is and attempt to raise minting fees to 1% (maybe an extreme example) and perform T buy-backs with the proceeds (and decline any community proposals using our revenue differently). We, unfortunately, continue to see great interest in centralized bridges and bridges like cbBTC could easily undercut that fee and compete with us/outcompete us - in a way they can’t at present fees.

That last example may be a bit farfetched. The main point is that at current levels of governance participation, we may all be relegated to the sidelines to watch as BitGo makes those decision for us.

3 Likes
14

It still does not make any sense to bail them out. I do not believe wbtc is fully backed. Just let them collapse, and then buy the BTC they have at a greater discount to put on Threshold’s balance sheet. We’d increase our market share for less that way.

Them declaring bankruptcy is good for T since we can buy their assets at a significant discount. We might not even need to dilute the T token holders at all this way too.

2 Likes
15

I find this opportunity incredibly exciting, and am in agreement with @shoegazer69 in that in the event of the fallback path being taken we simply burn the tokens. The only reason for their issuance should be this specific deal. The dilution is otherwise in no way worth it.

3 Likes
16

It would only make sense to do this if after an audit BitGo can prove wBTC is backed 1 to 1 by Bitcoin. I do not believe they are backed 1 to 1 since their sales team never got back to me when I was trying to set up an arbitrage firm to arbitrage the price difference between wBTC and BTC. I believe they have been selling Bitcoin as their fee is not enough to cover operations.

Just let BitGo be a forced seller. Bitcoin drops below $10k, and we can then accumulate more Bitcoin for far less using debt financing. Then in a month we sell some of the bitcoin accumulated for cheap to cover the debt.

Either that happens or they declare bankruptcy and have to sell their $9 billion worth of Bitcoin to us for pennies on the dollar. The point is we can get a better deal.

2 Likes
17

They literally have every single bitcoin address in custody listed on their audit page. It’s adding up to match the outstanding supply. See: Wrapped Bitcoin ( WBTC ) an ERC20 token backed 1:1 with Bitcoin

If they have been “selling bitcoins” then I see no sensible explanation for why there are still funds listed on the page.

How would they cover it up? Either the receiver of the bitcoins have agreed to keep the funds stuck on an address and leave that up on the audit page, or they have not received their bitcoins yet, just a promise of it, or Bitgo is picking random addresses from the blockchain to use as proof, hoping that nobody will find out. Seems highly unlikely to be the answer.

“Them declaring bankruptcy is good for T since we can buy their assets at a significant discount. We might not even need to dilute the T token holders at all this way too.”

Either that happens or they declare bankruptcy and have to sell their $9 billion worth of Bitcoin to us for pennies on the dollar. The point is we can get a better deal.

Please explain how that works exactly.

36.4M/9000M = 0.4%

You’re paying 0.4% in this deal. How exactly will any other scenario give you a better deal? Show me the math.

2 Likes
18

“Them declaring bankruptcy is good for T since we can buy their assets at a significant discount. We might not even need to dilute the T token holders at all this way too.”

Either that happens or they declare bankruptcy and have to sell their $9 billion worth of Bitcoin to us for pennies on the dollar. The point is we can get a better deal.

Please explain how that works exactly.

36.4M/9000M = 0.4%

You’re paying 0.4% in this deal. How exactly will any other scenario give you a better deal? Show me the math.

You let the price of Bitcoin crash up to 2011 levels, and then accumulate. You don’t need dilution for that. Nor, need to give them control of Threshold Network in the process. If it takes more total cash to accumulate at buy levels at or below $17k you sell a bunch of the Bitcoin accumulated on the bounce to pay off the debt. The end result is we increase the amount of Bitcoin under the control of Threshold, while not diluting T tokens, nor giving control of the network to someone else.

How would they cover it up? Either the receiver of the bitcoins have agreed to keep the funds stuck on an address and leave that up on the audit page, or they have not received their bitcoins yet, just a promise of it, or Bitgo is picking random addresses from the blockchain to use as proof, hoping that nobody will find out. Seems highly unlikely to be the answer.

The page might not be accurate. The point is we need to audit their supply. Who knows if the amount listed on their audit page actually adds up to the amount on those addresses. We need to verify the balance on those addresses add up to the amount they claim with a script.

All I know is when I was attempting to start an arbitrage firm that would be making daily wBTC and BTC conversions to arbitrage price differences they stopped speaking to me rather quickly, and did not even give me a quote for how much I needed to pay to do that. As far as, I’m aware there’s only a few institutions allowed to redeem, and they rarely redeem. Tether is less restrictive. So before, thinking about giving them 15% of the T supply we need to confirm they’re not doing anything sketchy with their BTC accounting.

They’re not giving us the data in a format that makes it easy to confirm their claim they have 153,387.1826 BTC.

19

There’s not that many addresses, it will take you 30 minutes to check all, manually by clicking each link. I just clicked a few random addresses, they all checked out. You don’t need a script to do that. If you’re so worried surely you can spend 30 mins clicking the links?

Ok, so your thesis is that bitcoin price will drop to $1 (2011 levels) because Bitgo has sold a lot (aka embezzled) of the bitcoins in custody? And you expect T to remain at it’s current price in such event?

You have no idea what you’re talking about. Please stop.

5 Likes
20

This makes alot of assumptions about things that may not even be likely.

1 Like
21

We can’t expect this proposal to fully explore the contours of a business relationships with BitGO but some things to consider from the contents here as written.

BitGo will exist following passage of this agreement. Their bitcoin would provide >99.7% of our TVL. I don’t imagine they will be satisfied with the DAO collecting redeem fees (and minting fees if we change it from 0%) solely. They may engage this in any number of ways but some that we should be prepared for are:

  1. Taking over operation of the DAO through leadership positions. Citing governance concerns above, I think in any case we should expect members of their management team to run successfully for Treatsury Guild membership. Given their corporate interests and the TVL/fees involved I would not expect them to be collaborative if it wasn’t convenient for them. Their engagement in our DAO may exist on a spectrum of involvement -given their voting power, they would completely control the extent of their involvement. Not to be too alarmist but our community may be entirely co-opted into their organizational structure.

  2. Even if they allow us to continue to opperate with some level of community leadership, they may split the revenue sharing from fees. They may stay organizationally separate but pass a snapshot to ensure that 99.7% of fees are delivered externally to BitGo.

Separately, while they are participating in governance with their T grant, they may think to collect a healthy 15% APR and run a node/series of nodes. If they staked all of their T (or even if they kept ~200M T liquid) they would make up about 30% of the staked T. A single entity having this degree of stake weight/signer potential poses a real threat to the security of our network. On average 30 of 100 signers would be BitGo. This seems like a large liability - changing the size of the signer set or consensus threshold does not change the underlying stake mix from which this group is selected.

I appreciate that our community is taking this decision seriously. I also thank community members for considering futures of this relationship, and its impact on our DAO, beyond the effects on T price.

6 Likes