Umbrella activation parameters
After receiving feedback from and discussing this with other service providers, we think proceeding with a progressive activation of Aave Umbrella is reasonable.
Umbrella initial parameters
To start with, we recommend activating only a subset of assets in Aave v3 Ethereum Core in Umbrella to simplify this initial Phase, and promptly expand with other AIP to more assets and pools/networks.
The initial configuration we propose regarding Aave v3 Ethereum Core is the following.
Important. Aside from proposed configurations (assets, target liquidity, cooldown/unstake window, offset), both on the proposed Umbrella parameters and legacy, some variables need to be assumed for modelling, like the AAVE or ETH prices, average supply on Aave, or expected staked assets on legacy Umbrella, amongst others.
Our objective is to showcase a reasonable model that later on will materialise with more/less deviation on the production system.
| Staked asset | Covered asset | Target Liquidity * | Max emission (rewards at target liquidity) | Umbrella APY range (up until excess liquidity) ** | Total APY (Aave + Umbrella)*** | Cooldown/unstake window | Deficit offset |
|---|---|---|---|---|---|---|---|
| aUSDC (wrapped) | USDC | 85’000’000 USDC | 3’000’000 aUSDC/year | 1.76%-7.06% | 6.8%-12.5% | 20/2 days | 100’000 aUSDC |
| aUSDT (wrapped) | USDT | 85’000’000 USDT | 3’000’000 aUSDT/year | 1.76%-7.06% | 6.8%-12.5% | 20/2 days | 100’000 aUSDt |
| aWETH (wrapped) | WETH | 25’000 ETH | 550 aWETH/year | 1.1%-4.4% | 3%-6.3% | 20/2 days | 50 aWETH |
| GHO | GHO | 12’000’000 GHO | 1’200’000 aGHO/year | 5%-20% | 5%-20% | 20/2 days | 100’000 GHO |
*Target Liquidity is denominated in the contracts in wrapped aTokens, increasing over time in exchange rate. That means the Target Liquidity itself will grow slightly over time and rewards will need to be periodically adjusted.
For the sake of simplicity, the number on the table is in equivalent terms of underlying (USDC, USDT, WETH), not in wrapped aTokens.
** Umbrella has an upper limit of APY as max emission is capped, but technically no lower limit. However, going over the table’s lower point of APY would mean there are way more deposits than expected, hence the market pricing “cheaper” the risk of staking.
*** 1y average supply rates for each asset on Aave are taken as reference.
In addition, on the Umbrella side is important to highlight the following items on the activation proposal:
- Set as Rewards Admin the Aave Finance Committee, with a timelock of 1 day. This will be done by introducing a new Permissioned Payloads Controller, mirroring the architecture of the execution layer of the Aave Governance, but oriented to less critical flows like rewards updates.
- Set the Aave Ethereum Collector as the reward payer: the address from which rewards will be distributed. The configured allowance will be 50% of the defined yearly budget, which will allow enough but controlled flexibility for the Finance Committee to increase rewards during the initial month.
At any point, the Aave governance can modify this as required. - All outstanding deficits on assets to be covered by the initial Stake tokens will be “cleaned” with Collector funds on the AIP, up to a limit of ~$2’000 on each asset. The current aggregated deficit is up to ~$600 in USDC, USDT, WETH, and GHO, so the $2’000 margin seems more than enough.
- A DeficitOffsetClinicSteward smart contract will be given an allowance from the Aave Collector up to the Deficit Offset configured for each asset. This will allow the Aave Finance Committee to trigger deficit offset coverage without going through a governance proposal.
- The Deficit Offsets proposed are substantially above the bad debt levels historically accrued on Aave v3 Core on the covered assets. That means said offsets act as a very substantial “tranche” that should protect stakers from slashing under normal conditions.
- Stake Umbrella tokens, as by design, will cover exclusively the deficit created on the associated borrowed assets on Aave v3 Core Ethereum: Staked aUSDC will cover exclusively the deficit on USDC, staked GHO exclusively the deficit on GHO, and so on.
Legacy Safety Module progressive deprecation
Together with the activation of the initial Umbrella instances, the AIP will also start a progressive deprecation of the legacy Safety Module to transition to Umbrella. The principles of this progressive deprecation are:
- Global coverage of Aave pool and instances should remain at similar levels, including Target Liquidity of Umbrella + broad slashable funds on the Legacy Safety Module.
- Coverage infrastructure should be fully migrated in those cases where Umbrella supports. E.g., legacy stkGHO on what concerns coverage will be fully deprecated in favour of Umbrella’s stkGHO.
Legacy Safety Module configuration (as of 15/05/2025)
| Staked asset | Rewards/day (AAVE) | Rewards/year (AAVE) | Rewards/year ($) | Average total staked ($) | Slashing eligibility | Total Slashable ($) | Swap effectivity (inverse slippage) | Effective coverage ($) |
|---|---|---|---|---|---|---|---|---|
| AAVE | 360 AAVE | 131’400 AAVE | 21’000’000 | 500’000’000 | 30% | 150’000’000 | 75% | 112’500’000 |
| AAVE/wstETH Balancer v2 | 240 AAVE | 87’600 AAVE | 14’000’000 | 180’000’000 | 30% | 54’000’000 | 80% | 43’200’000 |
| GHO | 100 AAVE | 36’500 AAVE | 5’800’000 | 150’000’000 | 100% | 150’000’000 | 100% | 150’000’000 |
Proposed Legacy Safety Module post-Umbrella Phase 1 activation
| Staked asset | Rewards/day (AAVE) | Rewards/year (AAVE) | Rewards/year ($) | Average total staked ($) | Slashing eligibility | Total Slashable ($) | Swap effectivity (inverse slippage) | Effective coverage ($) |
|---|---|---|---|---|---|---|---|---|
| AAVE | 216 AAVE | 78’840 AAVE | 15’768’000 | 450’000’000 | 20% | 90’000’000 | 85% | 76’500’000 |
| AAVE/wstETH Balancer v2 | 216 AAVE | 78’840 AAVE | 15’768’000 | 162’000’000 | 20% | 32’400’000 | 90% | 29’160’000 |
| GHO | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
*Merit incentives will not be touched on the legacy stkGHO, and coverage incentives will be moved to the new stkGHO.
High-level implications of the activation
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Currently, on the AAVE/ABPT components, the legacy Safety Module has a total coverage of ~$204m (30% of ~$780m), but with very low capital efficiency from the stkAAVE/stkABPT side, making this number realistically closer to ~$155m. This coverage is heterogeneous in the case of AAVE and stkAAVE (it applies to multiple pools, to all assets on those pools).
With the reductions of slashing eligibility and rewards on stkAAVE and stkABPT, we expect this number to still be in the order of ~$110m, which will remain as the heterogeneous coverage mechanism for assets not covered by the Umbrella day 0. -
On the legacy stkGHO size, the current coverage is very outsized compared with the realistic requirements. So the slashing removal from the legacy stkGHO will change the coverage of GHO to more sane levels compared with outstanding borrowings: from ~$150m average on legacy stkGHO to a target of $12m in Umbrella Staked GHO.
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On the legacy Safety Module, the reduction of rewards in percentage is higher than the reduction in slashing eligibility, because on low-level percentages of slashing, decreases have proportionally more weight.
The end goal is to remove completely slashing from them, but given their current size, we think it is more responsible to do it progressively until Umbrella’s liquidity builds up in this initial Phase and follow-ups. -
Even considering the absolute value reduction of GHO coverage and reducing slashing percentage on legacy stkAAVE/stkABPT, the global coverage will be higher post-Umbrella:
- Pre-Umbrella Phase 1: ~$305m.
- Post-Umbrella Phase 1: ~$345m
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The comparison of rewards’ expenses pre- and post-Phase 1 Umbrella is as follows:
- Pre-Umbrella Phase 1: ~$51m/year (in AAVE token).
- Post-Umbrella Phase 1: ~$40m/year ($31.5m in AAVE token + $8.5m in aTokens).
This shows major cost savings for more absolute coverage, and the number will substantially decrease as in the follow-up phases, as the legacy Safety Module continues its deprecation, realistically settling to levels of ~$15-30m, if assuming zero expenses of AAVE as rewards.
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Realistically, on follow-up proposals, the coverage of other networks will be approximately proportional to the pool’s size in comparison with Ethereum, and any ad-hoc consideration.
This implies that expenses and coverage would be 10-20% more once the other pools and networks are added.
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By keeping Merit rewards, but removing slashability, legacy stkGHO will factually become a non-slashable staking contract, with a cooldown.
Next steps
After some days in this forum, we will proceed with creating an ARFC Snapshot for these final parameters, which will precede the AIP for the Aave governance to apply them in production.