Aave Weighs Higher Leverage for Bitcoin-Backed Loans Amid Price Dip Risk
A proposal to increase leverage on Bitcoin-backed loans in Aave's V3 Ethereum Core has advanced to voting, but it may leave borrowers more vulnerable to price dips.
The proposal from LlamaRisk would allow users to borrow up to $0.81 against each $1 of WBTC or cbBTC collateral, an 8% increase from the current limit of $0.73. The liquidation threshold, which marks the point at which a position becomes eligible for liquidation, would also rise from 78% to 85%.
This means that if the price of Bitcoin drops by about 4.7%, a maximally leveraged position could reach the proposed liquidation threshold, according to LlamaRisk's analysis. The study found that economically meaningful positions generally cleared within minutes under existing parameters, but it cannot establish how the proposed settings would perform during extreme market moves.
The increase in leverage is based on one year of liquidation data, which showed that the value-weighted 99th-percentile time a liquidation call spent at or below its execution price was five minutes. The study also measured processing after price-feed publications during two stress windows in February and October 2025, finding that 100% of seized volume cleared within five minutes.