According to Milk Road, BTC-backed loans entail significant risks such as liquidation risk, where a BTC crash could lead to your collateral being sold at a loss, and price volatility, which might trigger forced sales before you can react. Additionally, overcollateralization is a concern as it requires tying up more BTC than initially anticipated.

According to Ai 姨 (@ai_9684xtpa), a whale collateralized $117 million worth of WETH and borrowed 68.13 million DAI, which is 58% of the collateral's value, causing a near liquidation scenario. This is due to MakerDAO's 'minimum collateralization ratio,' a core risk management mechanism designed to ensure system solvency and prevent bad debts from under-collateralization.