LlamaRisk, a DeFi risk and research firm, has submitted an Aave governance proposal to tighten WBTC (Wrapped Bitcoin) risk parameters in response to custody changes at BitGo, the current WBTC custodian. The proposal recommends setting WBTC’s loan‑to‑value (LTV) ratio to 0 across all Aave v3 deployments (Ethereum, Arbitrum, Avalanche, Harmony, Optimism, Polygon), which would prevent users from opening new loans against WBTC as collateral, while not forcing deleveraging of existing positions. LlamaRisk also urges lowering supply and borrow caps to only slightly above current utilization, modestly reducing liquidation thresholds, and increasing the reserve factor where alternative tokenized BTC assets exist, in order to limit Aave’s incremental exposure during the transition.
The move is framed as a temporary, precautionary measure driven by uncertainty around BitGo’s planned restructuring of the WBTC product and custody arrangements, and by knock‑on effects from other protocols such as Maker and Spark proposing to offboard or reduce WBTC exposure. LlamaRisk stresses that it does not see an immediate solvency threat to WBTC, and is not proposing to offboard the asset from Aave, but argues that curbing new WBTC‑backed borrowing now would make it easier to respond if trust issues emerge once the new structure is in place. Within the discussion, Aave Chan Initiative (ACI), a prominent Aave governance delegate, voices dissent, warning that aggressively restricting WBTC could be premature and could reduce Aave’s competitiveness at a time when multiple wrapped BTC variants (such as cbBTC and tBTC) are vying for market share on the protocol.
This debate highlights a broader risk‑management versus growth tension in Aave governance. WBTC has long been a key BTC‑denominated collateral asset on Aave, used in “vanilla” borrowing strategies and in some leverage setups. LlamaRisk’s proposal aligns with a conservative risk posture amid custodial transition risk and growing competition from alternative BTC wrappers, while ACI and others prioritize maintaining flexible WBTC markets and user experience. The outcome of the vote will influence Aave’s BTC‑collateral mix in the coming months and may signal how the protocol plans to balance incumbent assets like WBTC against newer custodial and non‑custodial wrapped BTC products.
✨ AI-generated background, compiled from web sources — not editorial content.
