In a new proposal, the Aave community is advocating for the LTV ratio of WBTC to be brought down to 0.
In Brief
LlamaRisk has put forward recommendations to not only reduce the LTV ratio of WBTC to zero but also to place caps on both supply and borrowing within Aave markets, aiming to bolster user stability.
As a provider of services related to risk management, LlamaRisk the Aave Request for Final Comments (ARFC) has been issued, proposing a decrease in the loan-to-value (LTV) ratio of Wrapped Bitcoin (WBTC) to zero. This plan entails cutting both supply and borrowing caps within the decentralized finance (DeFi) lending protocol's markets. Aave This recommendation arises from apprehensions regarding the custody transition of WBTC being handled by BitGo, with an aim to safeguard the stability of current users.
The suggested modifications are intended to reduce risks rather than to tackle immediate issues, with Aave planning to roll out these changes systematically, allowing for possible reversals if confidence is regained.
It is anticipated that the WBTC LTV ratio will be universally lowered to zero across all V3 platforms, covering Ethereum, Arbitrum, Avalanche, Harmony, Optimism, and Polygon. This action is designed to prevent any additional borrowing against WBTC collateral while ensuring that existing user positions remain intact. Furthermore, it is advised to lower the supply and borrowing caps to a figure 5-10% above current usage, thereby limiting exposure to WBTC while still providing users with some leeway to adjust their holdings.
Following the collection of community opinions, the ARFC will be put forward for a snapshot vote to obtain final endorsement. Should there be a consensus, an Aave Improvement Proposal (AIP) will be drafted to enact the proposed changes.
BitGo is in the process of shifting the legal custody of WBTC, broadening its management reach into Asia.
Wrapped Bitcoin (WBTC) acts as a tokenized form of Bitcoin, allowing holders to access Bitcoin's value for various DeFi applications such as trading, lending, and providing liquidity. Each WBTC is fully backed by Bitcoin on a 1:1 basis.
BitGo As part of a strategic partnership involving Justin Sun and the Tron ecosystem, a transition in the legal custody of WBTC to a 'multi-jurisdictional and multi-institutional' joint venture with BiT Global was announced in August. This will see new management entities established in Hong Kong and Singapore by September and October, overseeing wrapped Bitcoin which is currently valued at $9.2 billion.
Aave The Aave protocol operates as a decentralized, non-custodial liquidity platform that allows users to take on roles as suppliers, borrowers, or liquidators. Recently, the Aave Chan Initiative (ACI) has proposed an ARFC to incorporate integrate Coinbase’s cbBTC into the Aave V3 protocol on the Base blockchain. cbBTC is a new wrapped Bitcoin variant launched by Coinbase, aimed at offering more options for Bitcoin holders engaged in DeFi activities using Aave V3.
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