Aave proposal cuts BTC loan cushion to 4.7% from 6.4%

Aave governance has advanced a proposal from risk service provider LlamaRisk that would let Bitcoin-backed borrowers take on materially more leverage. On Aave V3 Ethereum Core, the maximum loan-to-value for WBTC and cbBTC collateral would rise from 73% to 81%, and the liquidation threshold would climb from 78% to 85%. The proposal moved to Snapshot on Sept. 21 with voting set to begin within 24 hours, though the vote result and any implementation remained unverified at the reporting cutoff.

Why it matters

The combined effect narrows the borrower's price cushion. A maximally borrowed Bitcoin position could reach the proposed liquidation threshold after an approximately 4.7% collateral-price decline, down from about 6.4% under current parameters, assuming debt stays unchanged and BTC is the moving leg. Existing borrowers would not automatically add debt, but new or adjusted positions could run hotter.

LlamaRisk's case rests on a year of liquidation data from August 2025 through August 2026. On Ethereum Core, 7,206 ETH liquidations seized $618 million and 2,621 BTC liquidations seized $358 million, with the value-weighted 99th-percentile work-off window at five minutes. During the February and October 2025 stress windows, 100% of seized volume cleared within five minutes of the oracle feed publication, and October produced just $0.39 million of event-level bad debt against roughly $128 million, none of it on the ETH- or BTC-family collateral analyzed.

The limits are equally specific. The worst one-hour BTC decline in the same dataset was 10.72%, more than twice the roughly 5% percentile the model calibrates against, and LlamaRisk's own summary cites 11.15% for the same figure. The model cannot remove liquidity, concentration or oracle risk, and past execution says nothing about an outage that coincides with an exceptional move.

Market impact

The changes extend beyond Ethereum Core. Arbitrum WBTC's LTV would rise five percentage points and Base cbBTC's by eight, while Ethereum Core WETH, wstETH and weETH would each get a 0.5-point increase. Base cbBTC's liquidation bonus would fall from 7.5% to 6%, and a separate Base cbBTC stablecoin E-Mode would move to 82% LTV with an 85% liquidation threshold.

The aggregate credit effect remains unknown, since the proposal does not disclose a full position-level dataset of collateral-enabled balances, debt and health factors. An implementation AIP would follow only after a positive Snapshot result, so the 81% Bitcoin LTV stays a governance proposal until a vote concludes.