According to Woofun AI, the Aave governance team is considering a proposal to restructure risk parameters for Bitcoin collateral loans. The proposal was submitted by risk service provider Llamarisk on September 21, is currently in the Snapshot review phase, and voting is expected to begin within 24 hours.
Although the core intention of the proposal is to optimize capital efficiency by increasing the leverage ratio, as of now, neither the voting results nor the final implementation status have been determined, and all of the high limit parameters involved are only in a proposed state and have not actually taken effect. The central point of contention in this governance operation is that while pursuing higher collateral utilization, the price drop tolerance faced by borrowers has been significantly compressed, thus creating new tension between agreement security and user experience.
It is worth noting that this proposal is not an isolated incident, but rather an attempt by Aave to adapt to current market liquidity by refining the risk model after many market stress tests, but the data support and potential systemic risks behind it still need to be thoroughly deconstructed.
On the Aave V3 Ethereum Core platform, the proposal substantially raised the loan-to-value ratio (LTV) of WBTC and cbbTC. The newly set LTV was $0.81, which is a significant increase compared to the original $0.73.
This means that for every $1 of WBTC or CbBTC a user invests as collateral, the theoretical maximum amount they can borrow increases from $73 to $81. At the same time, the liquidation threshold was raised from 78% to 85%. Judging from the surface data, both key parameters are moving in a direction beneficial to borrowers, but deep logic reveals a sharp contraction in risk buffer space. Under the original parameter system, there was a 5 percentage point gap between LTV and the clearing threshold; in the new proposal, this gap was reduced to 4 percentage points.
The more critical variable is that when the size of debt remains the same and the price of Bitcoin changes, there is only room to tolerate a 4.7% drop in collateral prices relative to the settlement threshold. In other words, despite the increase in the loan limit, borrowers are closer to the tipping point of being liquidated, and any slight market fluctuation may trigger the settlement mechanism. This structural change has significantly increased the vulnerability of highly leveraged positions under extreme market conditions.
This parameter adjustment is not limited to the Ethereum Core platform, but extends to multiple on-chain environments and asset classes. On the Arbitrum platform, WBTC's average LTV will increase by 5 percentage points; on the Base platform, cbBTC's LTV increase is more aggressive, reaching 8 percentage points.
Additionally, Ethereum-related assets on the Ethereum Core platform, including WETH, wstETH, and weETH, will each increase their LTV by 0.5 percentage points. Along with the LTV adjustment, some liquidation thresholds also increased, but the cbbTC liquidation reward rate on the Base platform was lowered from 7.5% to 6%. This change was aimed at balancing liquidation incentives with market liquidity. Notably, the Base platform's E-Mode mode, designed specifically for cbbTC, has an LTV set at 82% and a liquidation threshold of 85%. These figures reflect the maximum amount of debt each unit of qualifying collateral can support, but the proposal does not disclose the full amount of collateral, the size of debt corresponding to each type of asset, and the distribution of account health conditions. Since some tokens may not meet collateral requirements, have been banned, or have nothing to do with debt, the total reserve size often overestimates the amount of collateral that can actually be used. Therefore, historical seizure data cannot fully reflect the true risk distribution of current positions, which brings uncertainty to the systematic risk assessment after the expansion of multiple platforms.
According to data compiled by Woofun AI, LLAMarisk thoroughly traced the clearing activity on the Ethereum Core, Arbitrum, and Base platforms from August 2025 to August 2026. On the Ethereum Core platform, a total of 7,206 Ethereum assets were liquidated, involving an amount of $618 million; 2,621 Bitcoin assets were liquidated, involving an amount of $358 million. According to the data, 99% of liquidation requests, weighted by value, can be completed at or near the execution price, in as little as 5 minutes.
This statistic reflects the settlement processing window period, not the transaction completion time after the oracle data is updated. The study also analyzed data processing during the stress testing period in February and October 2025: in those two incidents, 100% of the seized assets in all listed markets were processed within 5 minutes of the release of the oracle data that led to profitable liquidation. There were no significant negative developments during February; in October, although $390,000 of assets had non-performing debts, the total debt was approximately $128 million, and LLAMarisk indicated that these bad debts did not affect the Ethereum or Bitcoin collateral analyzed in this proposal. These results show that in historical samples, the speed of response of liquidators is not a limiting factor. Even when the leverage ratio is higher, the rapid settlement mechanism can still operate effectively, but this does not mean that similar deviations will not occur in extreme market conditions in the future.
However, the effectiveness of the model is highly dependent on the accurate capture of extreme values of price fluctuations, and there are obvious internal contradictions and risk gaps in the existing data. In the detailed data sheet, the 99.9% quantile of the worst 1-hour price drop for Ethereum assets was 11.85%, while Bitcoin was 5%.
This percentile excludes the most extreme 0.1% of observations in the two-year sample. But in reality, the extreme decline recorded in history far exceeds this value: Ethereum's worst 1-hour drop was 24.27%, while Bitcoin was 10.72%. Bitcoin's worst-case 1-hour drop was 11.15%, which is a significant difference from the 5% percentile, and more than double that of the latter, given in the summary of the proposal.
This difference forms the core of the remaining risk. LlamaRisk's model assumes that regular oracle data updates and efficient liquidators can ensure that highly leveraged positions remain unattended for a full hour. However, if price data updates stall, the settlement process slows down, or the depth of the market deteriorates simultaneously, price fluctuations above this percentile may have more serious consequences. Thus, this percentile is actually designed to cushion bad debts for the agreement, not to protect borrowers. According to simplified calculations, a highly leveraged Bitcoin position may reach the proposed liquidation threshold after the collateral price falls by about 4.7%, while the agreement model assesses coverage capacity after liquidation through a price fluctuation of about 5% plus a liquidation reward rate.
Aave's governance team needs to determine whether, based on actual liquidation performance under current parameters, is sufficient to support allowing future positions to be held closer to the liquidation threshold. For assets backed by Bitcoin on the Ethereum Core platform, the maximum LTV ratio will increase by 8 percentage points, while at the highest leverage level, the simple collateral price buffer will shrink from around 6.4% to 4.7%. Existing borrowers won't automatically increase their debt, but the new limits will allow borrowers who open new positions or adjust their positions to take on more debt. At the agreement level, the situation is far more optimistic than looking at borrowers' buffer space alone, because economically significant liquidations in the historical sample were completed quickly, and during the two stress tests, none of the Ethereum and Bitcoin collateral analyzed showed no bad debts.
However, actual trading conditions in history do not reflect system failures associated with abnormal price fluctuations. In the same data set, the worst one-hour price drop far exceeded the level reflected by the percentiles, and the model failed to eliminate liquidity risk, concentration risk, and oracle risk. According to the forum, the corresponding implementation guidelines will only be issued once the results of the Snapshot review are positive. Bitcoin's 81% LTV ratio is still just a governance proposal until a final figure is determined by voting and official guidelines. When there are abnormally large price fluctuations in the market, accompanied by problems such as pricing disorder, settlement difficulties, or insufficient market depth, how Aave should view the reference value brought by these historical data remains a key unresolved issue.