Aave ARFC moves toward Snapshot with higher ETH and BTC collateral settings

What the proposal would change

On Aave V3, the proposal would move WETH to 81% LTV and 84% liquidation threshold on Ethereum Core, Arbitrum, and Base. On Ethereum Core, wstETH would rise to 79% LTV and 82% LT, while weETH would move to 78% LTV and 81% LT.

For Bitcoin-backed collateral, WBTC would increase to 81% LTV and 85% LT on Ethereum Core and to 78% LTV and 82% LT on Arbitrum. cbBTC would rise to 81% LTV and 85% LT on Ethereum Core, and to 81% LTV and 84% LT on Base. The Base proposal also lowers cbBTC’s liquidation bonus to 6.00% and raises the cbBTC Stablecoins E-Mode category there to 82% LTV and 85% LT.

On the Aave V4 Ethereum Main Spoke, the suggested collateral factors are 84% for WETH, 82% for wstETH, 81% for weETH, and 85% for both WBTC and cbBTC. The ARFC describes this as a dynamic configuration update.

How the risk case was built

LlamaRisk said the parameter review was based on a one-hour liquidation window, which it considers the key period for measuring the worst move a position may face while it is being cleared through sequential liquidations. According to the proposal, each threshold was set around the 99.9th percentile of the worst excursion observed in that window, taking the reserve’s liquidation bonus into account.

The analysis states that ETH remains more volatile than BTC over a two-year period, with annualized volatility of 68.8% versus 44.4%. It also reports a one-hour p99.9 excursion of negative 11.85% for ETH and negative 5.09% for BTC on the binding leg, supporting a more conservative treatment for ETH-linked collateral than for BTC-linked assets.

The report says Chainlink publications were dense during fast markets and that liquidation processing was measured in seconds across the markets reviewed. It adds that the slowest tail was tied to dust debt rather than broader liquidation breakdowns.

Stress events and liquidation data

The proposal references two major stress events from the observation period, in February 2025 and October 2025. LlamaRisk said the same framework used for V3 also supports the recommended V4 settings, partly because both rely on the same Chainlink SVR auction setup on Ethereum once it was live.

The report argues that the basis used for the recommendations covered realized one-hour excursions across the two-year record up to the 99.9th percentile. It identifies the residual risk as a scenario where oracle updates and the liquidation pipeline stall at the same time as a market move exceeds that percentile. In the data cited, the worst realized one-hour moves were negative 24.27% for ETH and negative 11.15% for BTC.

For liquid staking tokens, the proposal says wstETH and weETH have already been treated like blue-chip collateral in practice. Across the two years to August 2026, the two assets accounted for 6,486 liquidations and about $361 million of seized collateral across deployments, with roughly $296 million tied to wstETH and $47 million to weETH.

Process from here

The ARFC’s formal next steps are to gather feedback from the community and service providers, then move to Snapshot if consensus forms. If Snapshot passes, the changes would then be submitted as an Aave Improvement Proposal for execution.

LlamaRisk noted that it is a DeFi risk service provider funded in part by the Aave DAO, while also stating it is not affiliated with the protocol and was not paid by Aave for this review. For now, the proposal remains at the governance stage, with the upcoming Snapshot vote serving as the next confirmed checkpoint.