Aave Weighs Higher Leverage for Bitcoin Loans Amid Tightened Price Cushions

A proposal from risk service provider LlamaRisk would allow users on Aave V3 Ethereum Core to borrow up to $0.81 against each $1 of WBTC or cbBTC collateral, a significant increase from the current maximum of $0.73.

This change would also raise the liquidation threshold for these assets from 78% to 85%, giving borrowers more room before they are at risk of liquidation.

LlamaRisk's study analyzed one year of liquidation data and found that economically meaningful positions were typically cleared within minutes, supporting an argument for greater capital efficiency.

However, the proposal also notes that raising both parameters would still narrow the borrower's price cushion because the borrowing limit moves closer to the new liquidation line.