Wrapped Bitcoin (wBTC), one of the most widely used Bitcoin derivatives in the Ethereum ecosystem, has announced security measures amid ongoing DeFi contagion fears.
On Thursday, the project said it is upgrading its cross-chain DVN configurations, which would happen on Sunday, April 26. It added: “These updates are precautionary and reflect our ongoing approach to maintaining robust security standards across all integrations.”
For perspective, DVN (decentralized authentication network) is the system the attacker exploited on LayerZero, causing the Kelp DAO protocol to lose $293 million.
However, the KelpDAO had a simplified version DVN setup which required only a single verifier. This made it easier for the attacker to exploit the flaw.
As such, the wBTC team may be upgrading to a multi-signature system that will require more than two verifiers before assets can move across chains.
In addition to strengthening security systems, the project also placed a temporary pause on transfers via LayerZero.
WBTC OFT service via LayerZero is temporarily interrupted. Service will resume once the root cause has been identified and it is safe to proceed.
Why a secure wBTC is crucial
To be clear, the KelpDAO exploit took rsETH, a low-quality collateral, and swapped it for other higher-quality assets. Despite targeting a low-quality asset that is not widely used, the impact was significant.
KelpDAO lost $293 million, while contagion fears in credit markets led to outflows of more than $15 billion from Aave. Before the attack, KelpDAO had redeployed ETH (rsETH) and had a market cap of $1.6 billion and 22.8K holders.
On the other hand, WBTC has 180,000 holders, including major tier-1 exchanges like Binance. It has a market offering of $9.2 billion. Moreover, it is the most liquid and widely used DeFi platform in the Ethereum and Solana DeFi ecosystems, with a 44% market share.
from Coinbase wrapped Bitcoin [cbBTC] comes in second place with a market share of approximately 28%.
More than 70% of the wBTC supply is captured in lending protocols and standalone buy-and-hold. In other words, a similar exploit would trigger a deeper DeFi run, analyst Ignas noted.
I got chills thinking about wBTC being hit by a DVN attack. That would have hit every DeFi protocol, as well as multiple CEXs that store wBTC.
That said, wBTC only saw around $400 million in outflows in the first two days after the KelpDAO exploit. There has been a net inflow since Tuesday, April 21, which underlines the resilience.
Final summary
- Wrapped Bitcoin (wBTC) continues to strengthen its security systems to minimize the risk of KelpDAO being exploited.
- The product has been relatively resilient despite broader DeFi outflows led by Aave’s $15 billion outflow.