On August 9, BitGo announced that it was transitioning Wrapped Bitcoin (WBTC) to a new “strategic partnership between BitGo, Justin Sun, and the Tron Ecosystem.”

The announcement continued that this partner would would “continue to provide real-time proof-of-reserves.”

Despite specifically referencing the Tron ecosystem and promising that real-time proof-of-reserves would also continue, WBTC on TRON, as well as WETH on TRON, have been removed from the WBTC dashboard, meaning the proof-of-reserves for this token is no longer available.

The dashboard no longer includes WBTC on Tron but still features the versions on Ethereum, Base, Kava, and Osmosis.

An on-chain review of WBTC on Tron doesn’t show any substantial changes in the supply recently. However, it’s not currently possible to verify the BTC that is meant to collateralize these tokens.

Read more: Coinbase to delist WBTC months after Justin Sun controversy

These changes to WBTC come quick on the heels of Sun-advised HTX redeeming thousands of WBTC it hadn’t previously disclosed.

It’s not clear why WBTC made this change, especially as it continues to advertise on its homepage that it’s “Completely transparent. 100% verifiable.”

This change to not disclosing its backing brings WBTC on Tron in line with Sun-owned Poloniex’s BTC on Tron product. This product is approximately 1,000 times larger than WBTC on Tron, makes up a massive portion of all BTC on HTX, and doesn’t disclose where the backing is held.

Protos has reached out to BitGo, BiT Global, WBTC, and Justin Sun but none responded immediately to questions about why these products were removed from the website.

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BitGo’s August 9 announcement that it was partnering with Justin Sun and BitGlobal for wrapped bitcoin (WBTC) has stoked controversy across the ecosystem and drawn greater attention to Sun’s other projects.

Following the announcement, MakerDAO decided to disable new borrows against WBTC and Coinbase announced its own wrapped bitcoin product, cbBTC — a move that has drawn the ire of Sun.

He has accused cbBTC of operating without proof-of-reserves or audits, going as far as to claim that exchanges that haven’t yet completed a proof-of-reserves are “unable to meet the requirements.”

Unfortunately for him, Poloniex, an exchange owned by Sun that operates a wrapped bitcoin product far larger than cbBTC, doesn’t have a proof-of-reserves either.

HTX, a Sun-advised exchange, relies extensively on this product, making up more than half of the ‘bitcoin’ this exchange holds.

Read more: Justin Sun reveals Poloniex issues prevent proof of reserves

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MakerDAO, the lending protocol that operates the popular Dai stablecoin, has passed an executive vote that will disable future borrows against wrapped bitcoin (WBTC) after it was announced the asset was transitioning to a new joint venture that would involve BiT Global, BitGo, and Justin Sun.

The changes don’t affect current borrows of WBTC but will prevent users from making new borrows against it. 

There’s currently approximately $466 million in WBTC value in MakerDAO, according to data from makerburn.com.

This proposal also reduces stability fees for several assets, including ETH and WBTC, and reduces the Dai Savings Rate to 6%.

Read more: Justin Sun has 99 problems and WBTC is two of them

This change comes after BitGo, the custodian that has traditionally held the bitcoins associated with WBTC, announced it was transitioning WBTC to a joint venture between itself, BiT Global, and Sun.

Initially, BiT Global, which is advised by Sun, was going to hold two of the keys, but following community backlash, the model has changed so that BitGo will hold two of the keys.

BitGo has emphasized that this change will result in greater jurisdictional decentralization, but the community has raised concerns about the involvement of Sun and the less well-known BiT Global. 

Unchained has reported that Aave, another lending platform, is preparing to onboard TBTC, another bitcoin collateralized token, following these changes to WBTC. 

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Justin Sun will be part of a new joint venture with BiT Global (a Bithumb company) and BitGo to operate Wrapped Bitcoin (WBTC) products. However, a close review of BiT Global’s corporate filings shows concerning connections to Sun’s empire.

BitGo founder and CEO Mike Belshe took to the MakerDAO forums to defend the new joint venture, stating that Sun was “not in the management team of BiT Global nor does he have any key material access.” He also further encouraged people to “confirm that BiT Global is a licensed TCSP in Hong Kong.”

BiT Global Trust Limited is a licensed TCSP in Hong Kong (license number TC009340) but a close review of corporate records suggests Sun may be deeply involved with the firm.

The Hong Kong corporate registry lists two directors for this firm: Zhihong Liu and Yiying Jiang. 

Yiying ‘Jennifer’ Jiang is also involved with other firms that have ties to Sun. This includes previously serving as a director for DTV Limited, a firm connected to BitTorrent that’s owned by Sun. Additionally, Jiang also served as a director for Augustech LLC, a firm that was set up to provide services to Sun-owned Poloniex.

Jiang was also listed as the individual who owned Huobi Technology Europe Ltd. before it was dissolved. Sun has claimed he is only an advisor to HTX (formerly Huobi). Jiang was also a director for The TRON Network Limited and is the executive who signs the attestation reports for TrueUSD, in her role as an executive for Techteryx.

TrueUSD has previously denied that Sun owns the firm, but he was listed as an ‘Asia Market Advisor,’ and the former chief exec of the firm has alleged that Sun tried to acquire the stablecoin.

Belshe highlighted during an X Spaces that regulations prevent any shareholder from holding more than 1/5 of the trust firm. Interestingly, the corporate registry for BiT Global Trust Limited lists five shareholders, all based out of the same address in the British Virgin Islands:

• Digital Frontier Technology Limited
• Digital Matrix Technology Limited
• Digital Peak Technology Limited
• Digital Times Technology Limited
• Global Ayn Limited

The last one is particularly interesting because Sun is a well-known fan of author Ayn Rand. 

The WBTC DAOs

Belshe while speaking in the Spaces call highlighted that there are two decentralized and autonomous organizations (DAO) that manage WBTC.

There’s a small DAO that approves merchants and a large DAO that, according to Belshe, “owns the smart contract” and “picks, you know, how we do custody of this thing.”

Despite this claim, it doesn’t seem that the large DAO was consulted on this change in custody for WBTC.

There was further confusion during the Space, with Belshe originally claiming that WBTC has no ‘freeze’ function. However, a member of one of the DAOs later claimed that there’s a way for the DAO to freeze all tokens.

A review of the smart contract for WBTC on Ethereum does include a ‘pause’ function, but it would pause all tokens. Belshe probably meant no ability to freeze a single address like Circle, Tether, or other stable-asset issuers.

Protos reached out to BitGo for comment on why the large DAO has not voted for this change, and whether or not a freeze function exists but it was unwilling to respond on the record before publication.

Why does this matter?

There were very few details shared in the press release that announced this new WBTC joint venture about how custody and control of the keys will function. It stated that this transition would result in “diversifying both custodial jurisdictions and locations for the underlying bitcoin,” and further noted that it “will continue to use the same BitGo multi-signature technology and deep cold storage, with the only difference being the ability to distribute keys in multiple locations around the world.”

In a recent X Spaces, Belshe provided some clarification on how the keys will be custodied, noting that BiT Global will have one of the primary keys and the backup key, while BitGo will have the second signing key. This seems to mean that if it used the backup key, BiT Global could potentially move these bitcoins.

Since the Space, BitGo and BiT Global have decided to modify the plan, now intending to hold one key with BiT Global, one with BitGo Inc. in the United States, and one with BitGo Singapore Ltd.

It seems Belshe is less concerned with the possibility of bad behavior from BiT Global, noting that its legal role as a custodian “means the client’s assets (in this case the WBTC treasury) is not the property of BiTGlobal, it is not on the balance sheet of BitGlobal, and that BitGlobal is not allowed to lend, use, rehypothecate the assets, or send them out to others like JS or anyone else.

“They also must keep the assets separate from the assets of other clients. Failure to properly safeguard could have legal and criminal consequences for the individuals at BiTGlobal. The community here should think long and hard about the value of this legal and regulatory structure, as it is one of the key strengths of WBTC and none of the would-be WBTC competitors have it at all.

“With every one of the competing products, they could lend out your assets or decide to ‘generate a yield’ and you’d have no recourse. That is not possible with WBTC under BitGo or BiTGlobal.”

WBTC represents $9.4 billion worth of value on Ethereum and $16 million worth of value on other chains. This value is used across DeFi, including in lending protocols and to collateralize stablecoins like Dai. If there were ever any issues with the custody of the bitcoin, this could cause far-reaching consequences across the ecosystem.

Protos has reached out to BitGo, BiT Global, and Justin Sun to get comments on these connections between BiT Global and Sun and to seek clarification on other issues. BitGo was unwilling to provide a response on the record while Sun and BiT Global have not responded.

Read more: Justin Sun proposes billion-dollar fund to save crypto

Sun’s Other WBTC

Belshe’s criticisms of “would-be WBTC competitors” are worth considering in light of Sun’s connections to a WBTC competitor. 

Sun-owned Poloniex issues its own version of bitcoin on Tron and it’s vastly larger than the BitGo-associated WBTC on Tron. 

This token doesn’t disclose where its bitcoins are stored and provides no details on the security setup for those bitcoins.

Furthermore, despite these issues, this token represents the majority of all bitcoin on ‘Sun-advised’ HTX.

It is unclear why people would be rushing to collaborate with Sun or businesses that are, at the very least, run by his dependable deputies given his current difficulties operating a wrapped bitcoin on Tron product.

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BitGo announced on Friday that it’s transforming its wrapped bitcoin (WBTC) product into a new partnership with BiT Global (or maybe it’s BitGlobal. The company — formerly Bithumb — switches between the names on the English version of its website) and Justin Sun. 

Having previously operated the product, BitGo will now be a “minority shareholder” in the new venture.

BitGo’s WBTC

WBTC is offered on several different chains, with the largest and most important being the assets on Ethereum. There are currently over 154,000 WBTC on Ethereum from this product, worth over $9 billion. 

It is also offered on Base, Kava, Osmosis, and Tron, but those products are a tiny fraction of the size of the WBTC on Ethereum. 

MakerDAO delegates have reacted to the news about the change by suggesting that the limits for WBTC as collateral be reduced.

Mike Belshe, the founder and CEO of BitGo, jumped in to the discussion but was unable to share BiT Global’s ultimate beneficial ownership, directors, and officers, but did note that “if BiT Global is fully compromised…the treasury could be at risk.”

Sun himself has taken to X (formerly Twitter) to calm fears, falsely claiming that the product is receiving audits, claiming that his involvement is “entirely strategic,” and further claiming that he does “not control the private keys to the WBTC reserves.”

As someone would expect for a ‘Wrapped’ product, BitGo currently publishes the addresses where it holds the bitcoins for this product, which Sun seems to falsely believe constitutes an audit.

Justin Sun’s other WBTC

Sun has previously involved himself with another WBTC product on Tron, which is far more popular. 

The WBTC on Tron product currently offered by BitGo has less than 100 WBTC on Tron. This product is associated with the contract address TXpw8XeWYeTUd4quDskoUqeQPowRh4jY65. 

This isn’t the WBTC that most people associate with Sun-related entities, though.

There is a separate WBTC on Tron product originally offered by Poloniex, a Sun-owned entity, and this is vastly more popular. 

It has approximately 112,000 tokens, supposedly backed by bitcoin, and is associated with the contract address TN3W4H6rK2ce4vX9YnFQHwKENnHjoxb3m9. That is approximately 1,120 times the size of the WBTC on Tron product currently offered by BitGo.

This product also makes up the majority of the bitcoin currently held on Sun-advised HTX. 

Read more: Justin Sun-advised HTX plays games with its reserves

Unlike the much smaller BitGo WBTC on Tron product, which discloses where the bitcoins backing it are held, neither HTX nor Poloniex have been willing to share where the much greater number of bitcoins for this product are held. 

Sun’s previous history of running wrapped bitcoin products without transparency that are used wildly in the reserves of entities he advises raises numerous concerns about this transition.

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Nevada-based Fortress Trust recently announced that it’s being acquired by Ripple. This acquisition was “accelerated” after a hack left Fortress Trust customer funds at risk, according to a Ripple spokesperson’s statement to The Block. 

Fortress Trust issued a statement in which it acknowledged the hack and that it was “impacted by a third-party vendor whose cloud tools were compromised.” It added that “there is no loss of funds.”

Ripple disagrees with this characterization of events, noting in its statement that “Ripple was in a position to act quickly to step in and make customers whole.” 

BitGo CEO Mike Belshe insisted it was not his company’s integration with Fortress Trust that was hacked, adding that “BitGo strongly advised Fortress to disclose what happened immediately. Fortress did not do that.”

Fortress was founded by Scott Purcell, a former chief executive officer for Prime Trust, another Nevada Trust company that recently declared bankruptcy.

In a statement provided to Protos, Purcell said: “Yes, a (major) third-party tool (cloud database tool, NOT a wallet) that a small handful of customers use to access their accounts at Fortress Trust was phished, and the hackers used the access from that tool to get into those customers accounts here and steal some crypto. It was not hacked at Fortress. It was not hacked at the point of connection to Fortress. It was hacked at the tool company.”

He added, “Fortunately (and surprisingly honestly) within 48 hours we got an email from the tool company admitting the breach on their end, and we are in the process of holding them accountable.”

Purcell also claimed that “NO CUSTOMERS HAVE LOST ANY ASSETS.” This apparently doesn’t mean that the assets were not hacked, but that Fortress Trust “instantly used our balance sheet to cover most of the customers in whole and by Tuesday (after the Labor Day weekend), thanks to Ripple stepping up, we fully covered the primary customer.”

Purcell also directed his ire towards Belshe, noting that, “As you’ve seen from his sour-grapes tweets, Mike Belshe has chosen to violate our NDA to whine about me not selling the trust company to him, lighting up Twitter with flat-out lies and with half-truths, which he knows extremely well given that he was looped in on the incident the very first day and was part of the comm’s planning.”

Similarities to Prime Trust

Banq, a former Prime Trust subsidiary led by Purcell, is also currently bankrupt. Banq filed a lawsuit against Fortress NFT and Purcell, alleging that Purcell misappropriated Banq’s technology, employees, and client relationships to start Fortress. It has reiterated these allegations in the process of its bankruptcy. 

Similarly, Prime Trust has alleged in its own bankruptcy proceedings that while Purcell was leading the company, it used millions of customer funds to invest in Terra. It also detailed how it lost access to millions of dollars worth of customer cryptocurrency, which it attempted to cover up by using customer funds to purchase replacement cryptocurrency.

The funds that Prime Trust lost access to were directed to a specific wallet beginning in January 2021. That same month, it was also announced that Purcell was leaving as CEO of Prime Trust to become the CEO of the holding company Prime Core Technologies.

Read more: Prime Trust used $82M in customer funds to buy Terra and Ether

At some point in 2021, Purcell stepped away from Prime Trust completely. He claimed on LinkedIn that he stepped down as CEO in January 2021, however, the bankruptcy declaration of the current CEO, Jor Law, said that he was the CEO until August 2021. The shortfall in crypto assets was apparently not discovered until December 2021, after both Purcell and Law agreed that Purcell wasn’t in charge. 

Fortress Trust is used by a variety of other firms in the space, including Swan, a bitcoin lending platform whose executives have repeatedly accused Ripple of criminal conduct.

Despite admitting that people were able to break into customer accounts and steal some crypto Purcell insists that “The last thing our industry needs is more theater and FUD. For us, yes, shit happened – we, along with Ripple and along with our partners, stepped up and handled it. No customer lost anything. We were not hacked, Fireblocks was not hacked, and BitGo was not hacked.”

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Edit 08:15 UTC, Sept 13: Corrected first paragraph to read that it was Fortress Trust not Fortress IO that was acquired by Ripple.

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BitGo’s attempted acquisition of Prime Trust has joined the long list of crypto buyouts that are announced and end up failing, according to a tweet from BitGo’s Twitter account.

The company recently had a lawsuit against Galaxy Digital related to a failed acquisition dismissed in court. Meanwhile, Prime Trust has had to stop both withdrawals and deposits of fiat and cryptocurrency due to action by state regulators.

This acquisition was originally announced just over two weeks ago, as Prime Trust was experiencing issues and reportedly needed to delay client withdrawals.

Read more: Prime Trust delays withdrawals, spooks Binance US, Swan users amid acquisition

Prime Trust has recently been targeted in state action, including in Texas where it has agreed to cease operations. Stably, one of Prime Trust’s clients, also announced that it received notice from Prime Trust that the company had received a cease and desist from the Nevada Financial Institute Division and was “halting all deposits of fiat and digital assets for custody.”

It also said that it would be “halting all withdrawals of fiat and digital assets for custody.” Nevada is the primary state in which Prime Trust is incorporated and operates. Banq, a Prime Trust subsidiary, has recently filed for bankruptcy protection.

Prime Trust’s previous issues have led many of its clients to seek out alternatives, including Binance US increasing its reliance on Wyre, which has since announced it is ending operations. Cryptocurrency lender Swan also previously announced that it is transitioning away from Prime Trust in favor of Fortress Trust.

Banq has filed a lawsuit against Fortress, alleging that it was started using stolen assets. It has reiterated these allegations in its bankruptcy proceedings.

Other Prime Trust clients like the stablecoin TrueUSD have had to disable Prime Trust-related features, but have insisted that it still intends to turn that features back on and continue using Prime Trust.

Protos has reached out to BitGo and Prime Trust for comment and will update this piece if we hear back.

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Investors in crypto app Ziglu are braced for heavy losses after investment platform Robinhood dropped its valuation of the UK-based company by nearly 60%.

Robinhood agreed to buy Ziglu for $170 million back in April but now, due to a “shift in market conditions” and citing recent failures, including Celsius, Voyager, and BlockFi, the Menlo Park firm has slashed its offer to just $72.5 million.

This translates to a share price of $34.04, a significant drop from the $58.12 reached during Ziglu’s last funding round in November last year.

According to Ziglu founder Mark Hipperson, if Robinhood does indeed pull out of the previously-agreed deal, the company would be left facing an “extremely challenging market, and undercapitalized for the period ahead,” (our emphasis).

“The board has spent significant time in discussion with Robinhood’s CEO and executive team negotiating and improving the terms of their revised offer,” said Hipperson (via AltFi).

“Based on these discussions and other considerations, we believe the revised proposal…is the best and only reasonable path forward for the company.”

Robinhood’s Ziglu deal isn’t the only one to hit the skids

Robinhood’s Ziglu deal isn’t the only high-profile takeover to have stalled in recent weeks.

Earlier this month, Mike Novogratz’s Galaxy Digital pulled out of a $1.2 billion deal to buy crypto custody firm BitGo. Galaxy claimed BitGo had failed to produce the required financial paperwork.

However, BitGo doesn’t plan to take the snub lying down and says it will seek a $100 million “breakup fee” from Galaxy by way of compensation.

Read more: Galaxy Digital buys BitGo in $1.2B deal, Bitcoin’s biggest ever

“The attempt by Mike Novogratz and Galaxy Digital to blame the termination on BitGo is absurd,” BitGo’s lawyer said in a press release.

“BitGo has honored its obligations thus far, including the delivery of its audited financials. It is public knowledge that Galaxy reported a $550 million loss this past quarter, that its stock is performing poorly, and that both Galaxy and Mr. Novogratz have been distracted by the Luna fiasco. (our emphasis).

“Either Galaxy owes BitGo a $100 million termination fee as promised or it has been acting in bad faith and faces damages of that much or more.”

Galaxy told CoinDesk that these claims are unfounded and that it will defend itself “vigorously.”

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