Vault Swap liquidity risk, part of the broader liquidation system Trustless Bitcoin Vaults (TBV) runs, centers on what happens if the LLP's WBTC pool doesn't have enough depth when a liquidation actually needs it.

The permissionless path routes liquidation through the LLP — BTCVaultSwap is the first one live, registered as its own WBTC spoke on the Aave v4 Hub. It fronts instant WBTC settlement so liquidation stays atomic on Ethereum, while the slower Bitcoin-side redemption happens after.

Documented mitigation: a separate, permissioned path exists in parallel — registered arbitrageurs who took part in a vault's creation can redeem directly, without touching LLP liquidity at all.

The gap, and this part is my own reasoning rather than something stated outright: if the LLP genuinely ran dry, the permissionless path would have nothing to draw from, which would functionally push activity toward the permissioned path by necessity rather than by an explicit documented failover rule.

What to actually watch: not whether a fallback exists on paper, but how much friction shows up in practice if liquidity ever actually gets thin.

@BabylonLabs_io $BABY #baby $BANK $DEXE

Liquidity matters most?