Aave community debates WBTC concerns over Justin Sun's involvement

The Aave (CRYPTO:AAVE) community is divided over a proposal by LlamaRisk, Aave’s risk management provider, to reduce the loan-to-value (LTV) ratio of Wrapped Bitcoin (CRYPTO:WBTC) to zero. 

The recommendation stems from concerns about transparency following BitGo’s custodial transition of WBTC to a joint venture with BIT Global, which includes Tron founder Justin Sun. 

LlamaRisk cited transparency issues linked to Sun’s past projects, which have raised red flags regarding their multi-billion-dollar market caps. 

The firm proposed reducing WBTC’s LTV ratio to zero, which would prevent further borrowing against WBTC collateral on Aave’s V3 protocol across multiple networks, including Ethereum (CRYPTO:ETH) and Polygon (CRYPTO:MATIC). 

Additionally, LlamaRisk suggested lowering supply and borrowing caps to limit WBTC exposure while maintaining user flexibility. 

Despite these concerns, the proposal has sparked strong opposition within the Aave community. 

Marc Zeller, founder of the Aave Chan Initiative (ACI), criticised the proposal as overly harsh, arguing that it could harm existing WBTC users. 

He emphasised that while introducing alternative Bitcoin products like cbBTC (CRYPTO:CBBTC) and tBTC (CRYPTO:TBTC) could diversify Aave’s offerings, the community should avoid drastic measures that negatively impact users. 

“[We] will not support any scenario hurting them beyond absolute necessity,” Zeller stated, advocating for incentives to help users migrate to alternative products rather than implementing strict limits. 

The debate is not limited to Aave. 

Other DeFi platforms, such as MakerDAO (now called Sky), have recently approved measures to restrict borrowing against WBTC. 

Despite these moves, WBTC remains the dominant tokenised version of Bitcoin, with a market cap exceeding $9 billion, making it significantly larger than alternatives like Coinbase’s cbBTC. 

At the time of reporting, the Aave (AAVE) price was $173.00, while the Wrapped Bitcoin (WBTC) price was $64,292.80.