Summary
LlamaRisk supports this proposal and aligns with @ChaosLabs’ initially conservative proposed parameters. AAVE has reached a point on Base network at which it is sufficiently liquid, distributed, and established that collateralization is feasible.
The DAO will note that the proposed supply cap (30,000) is more than the current supply of $AAVE on Base (27,910), but good DEX liquidity and good bridging infrastructure.
Proposed parameters
Chaos Labs proposes a supply cap of 30,000 AAVE. The asset would be collateral only, with an LTV of 60% and an LT of 65%. The liquidation bonus is proposed to be 10%. This is substantially less than mainnet, which has an LTV of 69% and LT of 76% with a supply cap of 1.3M and a liquidation bonus of 7.5%.
This proposed onboarding is markedly more conservative than on mainnet, which is appropriate given that Base is a substantially less mature network. Caps are not at capacity on the mainnet, meaning that the unmet demand to collateralize this asset is not demonstrated.
Liquidity
Source: Aave to ETH Base trade, 1inch.io, March 31st, 2025
Liquidity is good, with 2M$ trades facilitated through onchain liquidity venues at a 10% price impact. The primary venue is the AAVE/WETH on Aerodrome, currently paying 410% APR. This pool holds the vast majority (86%) of AAVE on the network .
Aerodrome’s major liquidity provider is this address, who provides nearly the entire pool’s liquidity. Their deposits in Aave V2 indicate that this address holds long-term alignment, but this does not reduce the fact that they may withdraw all liquidity instantly. This results in the potential for liquidation to be unprofitable (stemming from high price impact on this network).
Source: Aave Base to Mainnet bridge, Oku, March 31st 2025
In addition, this asset can be bridged from the network to the mainnet, where it is far more liquid. Some 14,400 $AAVE may be bridged instantly. This will assist liquidators in profitably purchasing distressed positions to dump them instantly.
These considerations make liquidity risk worth considering, which is why Chaos Labs’ parameters are conservative and, therefore, suitable.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.