What Zero LTV Means for an Existing Aave Loan

Aave's governance forum is debating a proposal to cut the loan-to-value (LTV) ratio on an existing $10,000 collateral position from 80% to 65%, a change that would strip $1,500 of borrowing headroom while leaving the position's 1.33 health factor untouched. The adjustment illustrates a key mechanic of DeFi lending: lowering LTV on existing loans reduces the maximum borrowing capacity but does not trigger liquidation, since liquidation thresholds remain unchanged. The proposal matters because it shows how parameter changes can retroactively constrain borrowers' access to liquidity without warning, raising questions about whether Aave should grandfather existing positions or apply new LTVs only to fresh borrows. Aave remains the largest DeFi lending protocol with roughly $20 billion in total value locked across multiple chains, so parameter shifts ripple through thousands of positions. Watch for governance discussion on grandfathering language, potential risk-steward votes on the parameter change, and whether borrowers respond by repaying debt or adding collateral to restore headroom.