Provider of risk management services LlamaRisk issued the Aave Request for Final Comments (ARFC) proposal, which recommends reducing the loan-to-value (LTV) ratio for Wrapped Bitcoin (WBTC) to 0 and reducing supply and borrow caps on markets of the decentralized finance (DeFi) lending protocol Aave. This recommendation stems from concerns regarding BitGo’s custody transition for WBTC, with the goal of ensuring stability for current users.
The proposed adjustments are aimed at mitigating potential risks rather than addressing immediate threats, and Aave plans to implement these changes gradually, allowing for a reversal once trust is reestablished.
It is expected that the WBTC LTV ratio will be lowered to 0 across all V3 instances, including Ethereum, Arbitrum, Avalanche, Harmony, Optimism, and Polygon. This measure will prevent any further borrowing against WBTC collateral while ensuring that the positions of existing users remain unaffected. Additionally, it is recommended to lower supply and borrow caps to a level 5-10% above current utilization, which will limit further exposure to WBTC while still providing some flexibility for users to adjust their positions.
After gathering community feedback, the ARFC will be submitted for a snapshot vote to seek final approval. If a consensus is achieved, an Aave Improvement Proposal (AIP) will be presented to implement the suggested changes.
BitGo Transitions Legal Custody Of WBTC, Expanding Management In Asia
WBTC is a tokenized representation of Bitcoin, enabling holders to utilize Bitcoin’s value within DeFi applications for trading, lending, and liquidity purposes. Each WBTC is fully backed 1:1 by Bitcoin.
BitGo announced a transition in the legal custody of WBTC to a “multi-jurisdictional and multi-institutional” joint venture with BiT Global as part of a strategic partnership involving Justin Sun and the Tron ecosystem in August. The management of wrapped Bitcoin, currently valued at $9.2 billion, is set to be expanded to two new entities located in Hong Kong and Singapore in September and October.
Aave Protocol functions as a decentralized, non-custodial liquidity platform that enables individuals to participate as suppliers, borrowers, or liquidators. Recently, the Aave Chan Initiative (ACI) proposed an ARFC to incorporate Coinbase’s cbBTC into the Aave V3 protocol on the Base blockchain. cbBTC is a new wrapped Bitcoin introduced by Coinbase, designed to provide Bitcoin holders with more options for engaging in DeFi activities on Aave V3.
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