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.
Full convo here. This part starts at 1:09:30. https://t.co/0KQg6bzd8k
— Chris Blec (@ChrisBlec) December 14, 2022
“[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 and added 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 attempt to unwrap the 3,000 wBTC was also confirmed on the Ethereum transaction aggregator Etherscan.
However, 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 the firm eventually filed for Chapter 11.
wBTC is a tokenized version of BTC, which can be redeemed for BTC when it is sent to a burn address which triggers the 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%.