Narrowing price cushions leave Bitcoin loans vulnerable to 4.7% price dips as Aave weighs higher leverage
Aave risk provider LlamaRisk proposed raising borrowing limits for Bitcoin-backed collateral on Aave V3, including Ethereum Core WBTC and cbBTC LTV from 73% to 81% and liquidation thresholds from 78% to 85%. The proposal has advanced to a Snapshot vote; the changes are not yet approved or active. LlamaRisk cites historical data showing liquidations generally cleared quickly and no bad debt on the reviewed ETH- and BTC-family collateral in two stress periods. However, higher leverage would narrow borrowers’ price cushion, while the study’s historical performance cannot rule out losses during extreme price moves coinciding with oracle, liquidity or liquidation disruptions. Other proposed changes affect Arbitrum, Base and several Ethereum collateral assets. The proposal does not quantify how much additional debt users might take on.
