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BitGo’s strategic moves
Macauley Peterson & Donovan Choy
August 12, 2024
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Welcome back to 0xResearch. Here's what we’ve got for you today:
The Sahm splits
Wrapped-BTC’s bad rap
Sui trending
On Friday, the CME bitcoin futures neatly filled the gap that opened up on the Aug. 4-5 selloff.
The new week is starting on an up note, as the conclusion of most observers one week after the selloff is that the dramatic drop was a market overreaction — or “the mother of all flushes,” as Blockworks’ Felix Jauvin put it on his weekly roundup.
After the Sahm rule was triggered, recession worries once again flared up to the point of some speculating about an intra-meeting interest rate cut from the FOMC — which would be bearish, but also unlikely.
One person not concerned about unemployment at this point is Claudia Sahm, who told Jauvin that her “baseline is not a recession.”
“Sahm has split with the Sahm rule,” she said, though noting that risks are “elevated.”
That said, there’s also an argument over the extent to which deleveraging events — changes to market structure like those attributed to the unwinding of the yen carry trade — will take some time to fully play out.
In other words, more volatile chop for a bit.
Maker wary of Justin Sun
Bitcoin launched years before the Ethereum Virtual Machine (EVM), and is thus non-native to EVM chains. But that hasn’t stopped people from wanting to tap into BTC capital.
The prevailing way to integrate BTC with the EVM is to use a “custody and wrap” model. This involves trusting a custodian to lock up your BTC collateral in a reserve while minting an ERC-20 version (wrapped bitcoin) on an EVM chain so it becomes usable within Ethereum DeFi. The most successful demonstration historically has been BitGo’s WBTC with 154,738 WBTC ($9.1 billion) issued on the EVM today, about 0.78% of bitcoin’s total market cap.
Others have had a go at this tokenized bitcoin business — some more decentralized than others — but most have failed.
While BitGo has maintained a massive lead, a recent change to its legal structure has caused an uproar among DeFi spectators. BitGo announced over the weekend a “strategic partnership” with “Justin Sun, and the Tron ecosystem.” Over the next 60 days, WBTC will be custodied under a “multi-jurisdictional” structure (Hong Kong and Singapore), via a joint-venture with BiT Global, a registered trust in Hong Kong.
Unsurprisingly, the mention of “His Excellency” Sun doesn’t go unnoticed, given his controversial history in DeFi.
Regardless of your views on Sun, the new risk factors deserve serious study. WBTC is a major source of collateral in many DeFi protocols. Maker’s DAI stablecoin, for instance, is collateralized by $155 million of WBTC, about 3% of DAI’s total collateralization. That doesn’t seem like much, but that WBTC generates a whopping 5.4% ($13.6 million) of Maker’s annualized revenues.
Yet, Maker may be ready to forgo that cashflow with a proposal to delist WBTC entirely from the protocol.
Block Analitica, a Maker risk management team, writes: “We can infer that Justin Sun will have significant influence or control over the joint venture managing WBTC.”
Hasu from Steakhouse Financial, another Maker contributor, is calling this “likely the right choice,” and there’s also some notable activity by Curve whales increasing their loans against tBTC collateral, BitGo’s primary competitor today.
In response, BitGo CEO Mike Belshe stresses that “this seems to be more a reaction to the Justin Sun name than to facts,” adding that nothing about WBTC’s underlying cold-storage security model will change.
Sun himself also wants you to know that his “personal involvement in WBTC is entirely strategic,” and that he does not “control the private keys to the WBTC reserves and cannot move any BTC reserves.”
The whole episode is a stark reminder of how outdated the centralized “wrap and mint” cross-chain bridging model is. That model was maybe a reluctant necessity in 2021, but it’s begging to be replaced by trustless interoperability layers today.
Stay tuned to see how Aave reacts.
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
All 1000X listeners know that when Jonah and Avi give guidance on the markets, it’s best to pay heed.
Catch them live and in person at Permissionless III in October as they answer the perennial question: “Where are we in the cycle?”
Sui total value locked:
Why is Sui trending? The MoveVM-based L1 has seen an abnormal burst in TVL in the past week, undergoing a 82% rise to $621 million. SUI has racked up a 122% jump in price to $1.05 as well, taking the top spot among L1s in the rebound from last week’s crash.
Kaito is recording mentions across social media for Sui 8x higher than usual, most notably in a bull post by Real Vision CEO Raoul Pal (who it should be noted also sits on the board of the Sui Foundation).
It’s unclear why Sui is trending, but its burst in metrics comes off the back of Grayscale’s launch announcement of a Sui Trust last week. Suilend, Sui’s 4th largest protocol, also has an ongoing deposit promotion which ends in a day, potentially helping to explain the spike in TVL.
— Donovan Choy
Chainlink’s first-mover advantage, platform offering and key partnerships have positioned it as the undisputed leader in the RWA infrastructure space.
Lido has generated over $100m in the last year alone. It is the 4th highest revenue-generating app across all apps in 2024. With year to date earnings of $26m, it also maintains a top four status in profitability. Despite strong fundamentals, the LDO token has decreased by over 60% in 2024, leading to Lido's valuation dropping to historic lows. It currently trades at a 9.0x price-to-sales (P/S) ratio, among the lowest in its peer group. Upcoming and current initiatives like Vaults and the Staking Router are poised to further solidify Lido’s dominance.
The patent in question is a “method and system for separating storage and process of a computerized ledger for improved function.”
The price of bitcoin really took off at this point in the past three bull markets.
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The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.