Summary
LlamaRisk supports the changes proposed by @ChaosLabs. These modifications will serve as a further step toward mitigating exposure to Polygon’s bridge risk. At the same time, favoring non-rehypothecated assets within Aave’s Polygon market will ensure an enhanced user experience and greater flexibility.
To complete the rebalancing of the market, further changes to the parameters, as suggested by @eboado, will be necessary. The Risk Stewards could also execute this gradual process once the rationale and targets are set and announced in this governance thread.
Changes in Stablecoin Supply
On February 25th, 2025, the AIP setting the LTV of most stablecoins on Aave’s Polygon market was executed. Since then, we have seen outflows amounting to 10–20% of the supply of these stablecoins, suggesting that suppliers have begun to rotate out of the market. While some of these moves could be associated with the overall negative market sentiment, it is evident that the outflows have been significant. Nonetheless, the supply figures for USDC and USDT are expected to rebound if this ARFC Addendum is enacted.
Source: Aave V3 Polygon, March 3rd, 2025
E-Mode
At the time of writing, the loan in the Stablecoins E-Mode totals $12m. The proposed changes to E-Mode’s LT parameter might trigger minor liquidations but are not expected to impact the Polygon market aggressively. Making all stablecoins non-borrowable in this E-Mode would prevent new borrow positions from being opened. Therefore, these changes are anticipated to initiate capital migration from the Stablecoins E-Mode. Further reductions in LT and LTV would be needed to reduce the borrows completely.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led, non-profit 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.