A new Aave Request for Comment (ARFC) proposal is considering higher collateral efficiency for Bitcoin- and Ethereum-linked assets on the lending protocol. The governance discussion explores whether borrowers should be allowed to extract more capital against some of the platform's largest collateral assets.
Proposed Parameter Changes
The proposal suggests higher loan-to-value (LTV) and liquidation-threshold parameters across several assets, including WETH, WBTC, cbBTC, wstETH, and weETH. One of the primary changes would adjust WETH to an 81% loan-to-value ratio alongside an 84% liquidation threshold. This adjustment would allow users to borrow a larger amount against the same quantity of collateral before reaching critical liquidation risk.
These proposed changes cover deployments across the Ethereum, Base, and Arbitrum networks. The adjustment is framed as a capital-efficiency modification based on current risk analysis.
Governance Process and Risk Considerations
While increased borrowing power provides greater utility for users, collateral settings represent some of the most sensitive variables within a lending protocol. Raising the LTV increases capital efficiency, but it simultaneously narrows the margin for error by decreasing the distance between maximum borrowing limits and liquidation.
Because of these sensitivities, the adjustments are currently moving through Aave's ARFC governance process and are not live settings. Existing market parameters remain in force unless the community eventually approves the new numbers.
