- LlamaRisk has proposed reducing the LTV ratio of BitGo’s Wrapped Bitcoin (WBTC) to zero due to transparency concerns.
- The Aave community, including Marc Zeller, opposes the proposal and suggests diversifying with alternative Bitcoin products.
The Aave community is debating a proposal by LlamaRisk to reduce the loan-to-value (LTV) ratio of BitGo’s Wrapped Bitcoin (WBTC) to zero. LlamaRisk, Aave’s risk service provider, voiced concerns over the change in control of WBTC as per BitGo’s transition plan, where the control of WBTC is to be handed over to a joint venture with BIT Global. This venture features Tron blockchain founder Justin Sun, whose participation has raised eyebrows over the issue of transparency.
LlamaRisk stated that the move from Bitfinex to BIT Global poses a threat to WBTC’s conformity with transparency standards. The firm pointed to prior projects associated with Justin Sun and a string of recent issues involving transparency problems in high-market-cap products. However, up to this date, LlamaRisk has not received any satisfactory response from BitGo regarding the future effects of the partnership and its possible effects on WBTC usability.
Aave Community Members Challenge LlamaRisk’s Proposal
These concerns led LlamaRisk to suggest lowering WBTC’s LTV ratio to zero across all the Aave platforms. This change would nullify new borrowing from WBTC collateral yet would not affect the current borrowers. Moreover, the firm proposed reducing borrowing and supply constraints and setting them slightly above the current usage to mitigate the risk.
Some of the Aave community members, such as Marc Zeller, founder of the Aave Chan Initiative, has also criticized LlamaRisk’s proposal. Zeller agreed with the call for caution but said that the proposed plan was too harsh, and it could negatively affect WBTC users. Instead he proposed the adoption of other Bitcoin products such as cbBTC and tBTC in order to reduce the concentration risk of WBTC in Aave.
Zeller noted that though diversification is an advantage of the platform, any actions that impact the users should be done carefully. He suggested offering ways to redirect the users from WBTC to other products instead of imposing strict limitations which may cause the users problems.
The shift within Aave is echoed across the DeFi space as other platforms also start to move away from BitGo’s WBTC. For instance, it was Sky, formerly MakerDAO, that recently ceased new borrowing against WBTC.
Aave Considers Integrating Coinbase’s cbBTC Token
Recently, the Aave community was discussing a proposal that involves the integration of Coinbase’s upcoming Bitcoin wrapper, cbBTC, into the V3 protocol of Aave. This possible partnership between a DeFi protocol and a centralized exchange has raised some questions regarding the decentralization and the future of this sector.
The proposal by the Aave Chan Initiative (ACI) aims at trying to launch cbBTC on the Ethereum mainnet and Coinbase’s Base network. It consists of a $150,000 incentive pool funded by the Aave Merit program to foster liquidity and promote the use of cbBTC. The proposed funding would be disbursed in three months as Aave continues to work on its plan to acquire new users and solidify its place within the DeFi market.
The proposal focuses on the combination of a centralized exchange, which is Coinbase, and a decentralized protocol, Aave. Thus, including cbBTC, Aave wants to attract more customers and, therefore, grow the overall user activity.
