[ARFC] Update AAVE LTV and Liquidation Threshold Percentages

Author: Leritu

Date: 2025-02-07

---

Simple Summary:

This ARFC seeks the community’s input on adjusting AAVE's LTV percentage from 66% to 71% and the liquidation ratio from 73% to 78%

Motivation

Aave's token (AAVE) has meaningfully grown in its liquidity, market capitalization, and market share in the DeFi space. As a result of these meaningful gains, a modest upward adjustment to AAVE's ratios is worth considering.

A higher Loan-to-Value (LTV) and Liquidation Threshold (LT) can improve capital efficiency for AAVE holders, allowing them to access greater borrowing power without significantly increasing systemic risk. This change aligns with AAVE’s broader goal of maintaining a competitive and sustainable lending environment. Additionally, similar assets with comparable liquidity and adoption levels already operate at or above the proposed thresholds, reinforcing the prudence of this adjustment.

To be clear -- we do not want to create excess endogenous collateral risk by moving the LTV and Liquidation ratios too high. With that balance in mind, the proposed percentages are not aggressive. Indeed, the newly proposed 71% LTV and 78% liquidation percentage is still meaningfully below other more liquid and mature collateral.

Specification:

This proposal will achieve the following:

• Increase Aave token's LTV from 66% to 71%
• Increase Aave token's liquidation threshold from 73% to 78%

ARFC updated with Risk Parameters 2025-02-14

Instance	Asset	Current LTV	Rec. LTV	Current LT	Rec. LT
Ethereum Core	AAVE	66.0%	69.0%	73.0%	76.0%
Arbitrum	AAVE	63.0%	66.0%	70.0%	73.0%

Disclaimer:

I am a larger supplier of over 100,000 AAVE tokens into the platform with stablecoins (GHO) borrowed against that collateral.

Next Steps

1. If consensus is reached on this [ARFC], escalate this proposal to the Snapshot stage.
2. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright:

No claims to copyright with this post.