Aave Governance Proposal Aims to Boost Leverage, Narrow Price Cushions

Aave's governance proposal would increase Bitcoin-backed borrowers' leverage while narrowing their price cushions. According to LlamaRisk, users on Aave V3 Ethereum Core could borrow as much as $0.81 against each $1 of WBTC or cbBTC collateral, up from $0.73. This would raise the liquidation threshold from 78% to 85%. However, this change would leave borrowers with a smaller price cushion, as the borrowing limit moves closer to the new liquidation line.

LlamaRisk's analysis of one year of liquidation data shows that economically meaningful positions generally cleared within minutes. The study also measured processing after price-feed publications during stress windows in February and October 2025. While the results suggest that liquidator response was not the binding constraint, they do not recreate those events under the proposed higher leverage.

The proposal would extend beyond Ethereum Core, raising Arbitrum WBTC's ordinary LTV by five percentage points and Base cbBTC's by eight points. Selected liquidation thresholds would also rise, while Base cbBTC's liquidation bonus would fall from 7.5% to 6%. Aave's governance choice is whether observed liquidation performance under current parameters justifies allowing future positions to run closer to liquidation.