Author

Chaos Labs

Summary

Chaos Labs issues recommendations in response to the recent announcement by BitGo regarding the WBTC transition to joint custody.

Analysis

On August 9th, BitGo announced its intention to transfer the management of the WBTC product to a new joint venture with BiT Global, expected to take effect within 60 days. This transition will move WBTC custody from its current U.S.-based jurisdiction to multiple international locations, including Hong Kong and Singapore. The involvement of Justin Sun and the Tron ecosystem in this partnership raises concerns about potential influence or control over the new entity overseeing WBTC, which could introduce additional counterparty risks.

Current Stance: Given the limited public information available regarding the event anticipated in approximately 60 days, issuing a significant risk-off recommendation at this stage would be premature and could potentially have long-term negative implications for Gearbox. Currently, there are no observable fundamental changes in custody practices or proof of reserves, and the legal framework continues to provide robust protection against rehypothecation or tampering with user-minted WBTC.

Nevertheless, considering the historically low utilization rates across the Gearbox protocol, Chaos Labs advises a temporary reduction in exposure to WBTC as a collateral asset by setting the quota limit to zero (ForbidToken). This precautionary measure reflects the minimal current exposure across all open credit accounts involving WBTC, which amounts to approximately $28K, as shown in the accompanying plot.

From a risk-reward perspective, this limited exposure offers minimal potential upside, making it more prudent to adopt a cautious approach for the time being. Therefore, temporarily reducing exposure to WBTC as collateral limits exposing Gearbox materially to WBTC risks down the line with minimal costs in terms of quota usage. Once more detailed information regarding the custody changes becomes available, we will reassess and provide updated recommendations accordingly.

We recommend no change to borrowing from the WBTC market at this time, as in any event, supplied capital cannot be utilized as collateral on Gearbox.

Action Plan:

• Active Monitoring: We will continuously monitor the situation, staying vigilant for any new developments or information releases related to the upcoming event.
• Timely Updates: As more details emerge, we will promptly update the forum to keep the Venus community informed.
• Future Recommendations: Based on the evolving information landscape, we will issue new recommendations as necessary to ensure the market’s safety and stability.

Specification

Set the quota limit to zero for the following:

• WETH - Optimism
• WETH - Ethereum
• WETH - Arbitrum
• USDC.e - Optimism
• USDC - Ethereum
• USDC - Arbitrum
• USDC.e - Arbitrum

Transaction log

Transaction log is available here Md5 checksums: Arbitrum - a57697f21d5fcb2a4bedc9720e719405 Mainnet - b14692489cd2a73b16c5ed3a4501b190 Optimism - 286ec5bd02f205f1f5097d9469f2f6a3