Wrapped Bitcoin

Alameda tried to redeem 3,000 wBTC days before bankruptcy: BitGo CEO

The CEO of Bitgo stated that the Alameda representative failed the security verification process required to convert Wrapped BTC into BTC.

Mike Belshe, the CEO of digital asset custodian BitGo has confirmed that Alameda Research attempted to redeem 3,000 Wrapped Bitcoin (wBTC) in the days before FTX’s bankruptcy filing on Nov. 11. 

During a Dec. 14 Twitter Spaces hosted by decentralized finance (DeFi) researcher Chris Blec, Belshe confirmed the firm knocked back the redemption request because the unknown Alameda representative involved didn’t pass Bitgo’s security verification process and seemed unfamiliar with how the wrapped Bitcoin burning process worked.

“[The security details] didn’t match the process. So we held it up and we said no, no, no, no. This is not what the burn looks like. And we need to know who this person was.”

“So we held it and while we were holding it, waiting for a response on those issues [Alameda] went bankrupt and of course, once they went bankrupt, everything halted,” Belshe added.

The Bitgo CEO also said that Alameda’s 3,000 BTC mint request remains “stuck” on the platform’s dashboard, adding that the firm would most likely leave the tokens where they are until they’re dealt with by the trustees taking on Alameda’s bankruptcy case.

Alameda’s failed mint transaction request of 3,000 wBTC in exchange for 3000 BTC. Source: wBTC Network Dashboard.

Alameda’s attempt to unwrap the 3,000 wBTC was also confirmed on the Ethereum transaction aggregator Etherscan.

While this would have ordinarily triggered the redemption of BTC, Bitgo has a security mechanism set in place before the conversion takes place, which is what Alameda failed.

It is not understood what the motive was for attempting to redeem the $50 million worth of wBTC, but it is understood that FTX executives were attempting to raise funds from a variety of sources to stave off bankruptcy up until the last minute.

Analysis from Arkham Intelligence on Nov. 25 found that Alameda pulled $204 million from eight different addresses from FTX.US five days before its parent firm eventually filed for Chapter 11.

Related: Alameda had ‘unfair’ trading advantage, special access to FTX funds: CFTC filing

wBTC is a tokenized version of BTC, which can be redeemed for BTC when it is sent to a burn address, triggeringthe release of BTC. The conversion is made at a 1:1 ratio.

The tokenization of wrapped Bitcoin enables Bitcoin holders to interact with Ethereum-based smart contracts and decentralized applications.

Bitgo co-developed wBTC in 2019 alongside blockchain interoperability protocol Ren and multi-chain liquidity platform Kyber. wBTC is also managed by the decentralized autonomous organization wBTC DAO, which comprises over 30 members.

The wBTC dashboard currently shows that BitGo now holds 202,255 BTC in custody against 199,238 wBTC in circulation, amounting to an overcollateralization rate of 101.51%.

Celsius moved $529M worth of wBTC to FTX exchange: Should we be worried?

The crypto community is concerned that the transfer could lead to the dumping of more than $500 million Bitcoin into the market.

Embattled lending platform Celsius has transferred nearly 25,000 Wrapped Bitcoin (wBTC), worth $528.9 million, to crypto exchange FTX, prompting concerns from some in the community about whether a dump may soon follow. 

The huge transfer to the exchange comes after the lending platform paid off its remaining $41.2 million of debt to Maker protocol, freeing up its loan’s entire wBTC collateral.

However, the community is unsure what to make of the transfer, with some fearing that a dump of the wBTC on the exchange could soon follow, pushing Bitcoin (BTC) prices down.

Others have been more hopeful that the move may be in preparation for Celsius to swap their Wrapped Bitcoin for BTC, which may be a good sign for depositors who’ve been hoping for Bitcoin withdrawals to eventually reopen on the Celsius platform. Bitcoin is up 8% in the past 24 hours to trade above $22,100, suggesting market participants are taking the news in their stride.

The 25,000 wBTC sent to FTX follows the news earlier today that 150,000 BTC may be potentially released into the market as Mt. Gox creditors get their BTC back after an eight-year wait.

So far, both Celsius and CEO Alex Mashinsky have remained radio silent about any movement of funds.

Crypto lawyer Joni Pirovich, principal of blockchain and digital assets, told Cointelegraph on Thursday that Celsius’ repayment of its loan position with Maker will ultimately assist its customers.

Related: Bombshell allegations of fraud as KeyFi takes Celsius to court

“Maker protocol relies on overcollateralized loan positions, so the loan repayment of $41 million worth of DAI released 21,962 wBTC of capital which is now available to meet customer withdrawal requests.”

Pirovich added that even if Celsius ends up filing for bankruptcy, repaying the loan position and withdrawing collateral could improve the position of customers:

“The question is what will Celsius do with the withdrawn collateral? Keep it in reserve for customers or risk it to trade and on-lend.”