Summary
We note the parameter recommendations made by Chaos Labs for the removal of Isolation Mode to WETH and WMNT due to Version 3.7 ending support for this parameter, increased supply/borrow caps for WETH, and the onboarding of XAUt. Based on our analysis, we support the parameter changes to WMNT, which has sufficient secondary market sell liquidity and limits exposure to a WMNT/stablecoin E-mode. We additionally support the onboarding parameters set out for XAUt. XAUt pool liquidity is yet to be seeded, with the Mantle team indicating that $5M in liquidity will be deployed. This level of liquidity is reasonable to support XAUt/stablecoin E-Mode, with the launch of the asset being contingent upon adequate seed liquidity being deployed.
In contrast, we do not support the parameters proposed for WETH, given the lack of liquidity to support the proposed parameter changes, and it remains a challenge to constrain risk without Isolation Mode. The current $30M debt ceiling for WETH has been reached and is presently not sufficiently covered by the available onchain liquidity in the event of liquidations.
We are coordinating with the Mantle team to provide a resolution to the liquidity shortfall before we can support the WETH parameter changes.
XAUt
No pools have been deployed for XAUt, however, $5M has been committed by the Mantle team. The proposed XAUt/Stablecoin E-Mode and supply cap of 4K ($19.1M) would represent an almost 4x exposure with respect to the expected liquidity. We support these initial parameters with conservative adjustments, should liquidity and demand conditions change.
WETH
Since our initial analysis, WETH liquidity has deteriorated, with only 65 WETH (~$155K) available for swap within a 5.5% slippage range. Importantly, routing relies on multiple hops between different assets and liquidity venues to acquire USDT0. As shown in the table below, WETH liquidity venues are concentrated in ETH-correlated pairs, with 3 pairs accounting for the most liquidity depth.
Source: LlamaRisk, April 14, 2026
We thus do not support the proposed parameter changes to WETH, the current isolation mode debt ceiling already overly exposes Aave to potential liquidation bottlenecks in the event of an ETH downward price change. While the debt ceiling has been reached, current secondary market liquidity is not supportive of an increase or the removal of the ceiling. Chaos Labs proposal to remove the debt ceiling and increase caps to 80,000/74,000 WETH would worsen the adverse exposure conditions for Aave.
Source: Odos, April 14, 2026
| Pairs | TVL | DEX |
|---|---|---|
| wrsETH/WETH | $2.37M | Merchant Moe |
| cmETH / WETH | $1.3M | Merchant Moe |
| cmETH / WETH | $299K | Merchant Moe |
| mETH / WETH | $325K | Merchant Moe |
| MNT / WETH | $46K | Merchant Moe |
| WETH / cmETH | $1.26M | Agni Finance |
WMNT
In contrast, swap efficiency for MNT has improved, with 2.2M WMNT ($1.45M) that can be swapped for USDT0 within a 10% slippage range. With liquidity concentrated in USDe pairs, WMNT swaps are routed more efficiently into stables, with USDe offering deeper liquidity venues into USDT. We thus support the parameters proposed for WMNT, limiting exposure to a stablecoin E-Mode and the removal of the isolated debt ceiling.
Source: Odos, April 14, 2026
| Pairs | TVL | DEX |
|---|---|---|
| USDe / MNT | $3.67M | Merchant Moe |
| MNT / USDT | $1.23M | Merchant Moe |
| MOE / MNT | $284K | Merchant Moe |
| WETH / MNT | $46K | Merchant Moe |
| USDe / MNT | $3.32M | Agni Finance |
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.