Aave raised borrowing limits for Bitcoin- and Ether-linked collateral across V3 and V4. The higher limits give WBTC and cbBTC borrowers more capacity, but a position drawn to the maximum has less room for a price drop.
Aave has lifted the maximum loan-to-value ratio for WBTC and cbBTC on V3 Ethereum Core to 81% from 73%, part of a wider increase in limits across V3 and V4. The change lets borrowers take on about 11% more debt against the same collateral valuation, according to The Defiant's calculation.
Governance proposal 536, authored by LlamaRisk and implemented by Aave Labs, carried the changes. The Ethereum transaction implemented the V3 and V4 changes on Oct. 28 at 5:35 a.m. ET.
V4 collateral factors rise for Ether and Bitcoin assets
V3 changes cover Ethereum Core, Arbitrum and Base. On Base, the standard cbBTC liquidation bonus falls to 6% from 7.5%.
In V4, the Ethereum Main Spoke's collateral factors rise from 83% to 84% for WETH, 80% to 82% for wstETH, 80% to 81% for weETH, and 78% to 85% for WBTC and cbBTC. Positions using configuration key 0 receive the increased factor without refreshing their settings, according to the AIP.
Less room at the Bitcoin limit
Higher liquidation thresholds improve the health factors of existing V3 positions if debt and collateral stay unchanged. The trade-off appears when Bitcoin-backed borrowers use the new maximum. On Core, the gap between the LTV and the liquidation threshold for WBTC and cbBTC shrinks from five percentage points to four.
For a position backed only by either token and drawn to the limit, a collateral-price decline of about 4.7% would reach the liquidation boundary, versus 6.4% under the previous settings, The Defiant calculates. That assumes a fixed debt value and excludes accrued interest.
The cushion does not narrow across the board. Core WETH's gap widens from 2.5 percentage points to three, as do those for wstETH and weETH.
LlamaRisk calibrated thresholds to the 99.9th percentile of one-hour adverse price moves. Its stated residual risk is a move beyond that percentile coinciding with stalled price updates and liquidations.
Source: The Defiant
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