# \[ARFC\] Umbrella Coverage Expansion **URL:** \ **Category:** Governance\ **Created:** [October 8, 2025, 2:08pm UTC](https://governance.aave.com/t/arfc-umbrella-coverage-expansion/23224 "2025-10-08T14:08:11Z")\ **Posts on this page:** 1\ **Showing post:** 3
**Author:** ![LlamaRisk](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/llamarisk/32/12865_2.png) [@LlamaRisk](https://governance.aave.com/u/LlamaRisk)\ **Post date:** [October 22, 2025, 6:23pm UTC](https://governance.aave.com/t/arfc-umbrella-coverage-expansion/23224/3 "2025-10-22T18:23:13Z")
We appreciate the feedback from @BGDLabs. In response, we’ve revised the proposed parameters, removing wstETH from inclusion under Umbrella, as 97.2% of its borrow collateral originates from LRTs via E-modes. Given the oracle setup, the probability of a realized deficit is entirely dependent on an LRT slashing event, which remains very unlikely. For USDe, we’ve reduced the target liquidity since a large portion (69.4%) of its collateral base comprises correlated assets such as PT tokens and sUSDe, while still recognizing the non-zero systemic and liquidity risks associated with the remaining non-correlated collateral. Looking ahead, we plan to formalize a transparent framework to better define and quantify what Umbrella covers, helping the community clearly understand its scope and coverage principles. ## wstETH ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/ea5a4cd98d2018cead388addf51fe558995114f3.png) _Source: LlamaRisk, October 22, 2025_ wstETH on Aave V3 Core is primarily utilized in leveraged LRT looping strategies, which currently account for 97.2% of the total collateral backing wstETH borrows ($926M). Within this composition, rsETH represents $540M, followed by ezETH at $255M and weETH at $104M. The liquidation and bad debt of these positions are closely tied to how ETH LRTs are priced on Aave. Each LRT is valued through an LRT/ETH exchange rate feed layered on top of the base ETH/USD feed. This configuration results in correlated oracle pricing between wstETH and the respective LRTs. Consequently, bad debt can materialize only in the event of a significant negative deviation in the LRT/wstETH exchange rate (which would materialize only in the case of LRT slashing). ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/298d43d61257d5f1b325dec8a863f7790613f6f7.png) _Source: [Dune](https://dune.com/Henrystats/premium-discount-market-value), October 22, 2025_ Both weETH and rsETH exchange rates have slightly depreciated against wstETH. However, looping with these assets remains profitable as most of their rewards are distributed in the form of points, unlike ezETH, which auto-compounds its rewards, resulting in greater price appreciation. On April 23, 2024, ezETH experienced a [secondary market depeg of 78%](https://thedefiant.io/news/defi/renzo-s-restaked-eth-depegs-to-usd700-as-season-1-of-airdrop-ends), triggering over $150M in liquidations across platforms like Gearbox and Morpho. However, under Aave’s current oracle setup, no liquidations would have occurred, as the internal exchange rate remained stable. Therefore, given the low likelihood of realized deficits, we do not see a need to include wstETH under Umbrella. ## USDe ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/2c606254c6d84b18623e7e129de6f194e8c6e026.png) _Source: LlamaRisk, October 22, 2025_ Since June 2025, the majority of USDe borrows have been made against price-correlated collateral, primarily sUSDe and Ethena-related PT tokens under E-modes, which together represent 69.4% of the total collateral backing USDe borrows. This high degree of correlation lowers the risk of bad debt accrual, while the remaining non–price-correlated collateral amounts to approximately $215M. Borrow cap utilization has also remained mild, implying that even with a lower coverage, the share of currently borrowed amounts under protection would remain proportionally high. Therefore, we propose to revise the previously recommended USDe target liquidity to 20M USDe, reflecting both the predominance of correlated collateral and USDe’s relatively lower liquidity capacity. ## Revised Recommendations | 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 | | --- | --- | --- | --- | --- | --- | --- | --- | | aUSDe | USDe | **20,000,000 USDe** | 550,000 aUSDe/year | 1.83%-5.5% | 6.14%-9.81% | 20/2 days | 100,000 USDe | | aWBTC | WBTC | **250 WBTC** | 1.5 aWBTC/year | 0.39%-1.2% | 0.42%-1.23% | 20/2 days | 0.5 aWBTC | | aUSDT | USDT | 104,000,000 USDT → **130,000,000 USDT** | 3,670,000 → 4,587,500 aUSDT/year | 2.35%-7.05% | 7.37%-12.07% | - | - | | GHO | GHO | 12,000,000 GHO → **8,000,000 GHO** | 1,200,000 → 800,000 GHO/year | 6.66%-20% | 6.66%-20% | - | - | \* Aave APY reflects the 1-year average Supply APY. Based on the revised parameters, the updated borrow coverage for the newly onboarded assets, USDe, and WBTC, is as follows: | Asset | Current Borrow Cap | Total Debt Coverage (Liquidation Capacity + Target Liquidity) | Coverage of Borrow Cap | | --- | --- | --- | --- | | USDe | 2,500,000,000 USDe | 20,000,000 USDe | 0.8% | | WBTC | 28,000 WBTC | 704 WBTC | 2.51% | ## Disclaimer This review was independently prepared by LlamaRisk, a DeFi risk service provider 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 advic --- _[View the full topic](https://governance.aave.com/t/arfc-umbrella-coverage-expansion/23224)._