How to Nuke $9 Billion
Five days ago, the panic began. BitGo, the sole custodian and backer of WBTC (crypto’s largest wrapped Bitcoin token with a $9B market cap), published a blog post announcing that in two months, it will form a “strategic partnership” with BiT Global, a Justin Sun-backed company that’s based in Hong Kong.
This partnership consists of giving BiT Global access to 2 of the 3 WBTC private keys, massively increasing WBTC’s custody risk. Justin Sun, the founder of TRON, has one of the longest rap sheets in crypto and has barely managed to avoid prison through a combination of incompetent US regulators and some kind of act of God. A few of his greatest hits include literally copy-pasting the IPFS white paper while founding TRON, acquiring the stablecoin TUSD and massively undermining its controls and transparency, launching a “Tron WBTC” and not providing the addresses for the BTC that underlie it, and so on. While SBF and Do Kwon were being dragged away in chains, Sun was sipping on a daiquiri in Grenada.
DeFi users, almost all of whom are grizzled war veterans at this point, immediately expressed alarm. This alarm wasn’t confined to a few Twitter posters, though. The MakerDAO risk team wrote a post the day after the announcement proposing that WBTC be delisted as a collateral asset. Mike Belshe (@mikebelshe), BitGo’s CEO, quickly launched into action. Read his responses for yourself on the MakerDAO forum. Belshe strikes me as seemingly nice on a personal level, but is either profoundly naive at best or exit scamming his company at worst (who knows how big Justin’s payment is?) by partnering with Justin Sun and thinking WBTC and BitGo won’t be extremely negatively impacted by this.
Last night, Belshe and Justin were interviewed by Meow, a DeFi thought leader and founder of the popular DEX aggregator Jupiter. Meow repeatedly pressed Belshe on the question of whether BiT Global could mint or move the underlying Bitcoin treasury on a unilateral basis. The key moment happens at 41:30 in the recording. Meow asks Belshe, “Is it possible that there’s no one single party that has the capability to mint or move the funds?”
Belshe responds, “I don’t want to quite answer the question, but let me give you a couple points around it. Every security system has a weakest point. Just because that exists, doesn’t mean you have to change it right now. Maybe it can be changed in the future.”
If that’s not a red flag, I don’t know what is.
Belshe went on to give flimsy reasons for the partnership, citing “jurisdictional decentralization” as a big reason for entering into it. I don’t see how partnering with Justin Sun or the Chinese Communist Party (the rulers and regulators of Hong Kong) improves your jurisdictional decentralization, especially if they control 2 of the 3 custody keys. Last I checked, the CCP don’t exactly hold themselves to a high behavioral standard.
I found this to be another huge red flag, and given Justin’s previous pattern of behavior, I wouldn’t be surprised if he unilaterally transfers the BTC treasury out of WBTC and into his opaque TRON ecosystem that he fully controls.
I found myself asking, what’s the real motive for this partnership? At around 40 minutes in the recording, Belshe admits that WBTC isn’t a profit center for BitGo. At 1:38:00, Meow asks Belshe if BitGo is receiving any monetary benefits from the partnership. Belshe gives a non-answer about “securing the space better” and ends the call.
The following pithy tweet from “monsieur sneaky boy” could be an accurate summary of what’s going on:
WBTC had an amazingly position in DeFi that was poised to grow, and could have leveraged that position in many ways to generate revenue. I’m guessing that Justin offered BitGo a large amount of money relative to its true valuation in order to make this deal happen. But there’s a strong chance it will all go to zero, and Justin/Belshe will be left holding dust.
All they had to do was nothing. If you hold WBTC, switch off of it ASAP.