Summary
LlamaRisk supports enabling a dedicated XAUt E-Mode on the Aave V3 Core instance. XAUt was originally onboarded in isolation mode, leaving a targeted E-Mode setup that permits only tightly defined borrowables to be implemented under the Aave v3.6 rollout. From a risk perspective, the creation of this E-Mode is justifiable and presents a compelling opportunity to enhance capital efficiency for XAUt collateral, potentially increasing USDT and GHO borrowing demand and generating additional revenue for the protocol.
XAUt has stable on-chain liquidity, robust price stability relative to its underlying physical gold, and demonstrates consistently conservative borrowing behavior by users using it as collateral. These factors provide a high degree of confidence that the asset can now support the enhanced capital efficiency offered by a dedicated E-Mode on the Core instance.
Rationale
The primary market risks associated with any collateralized debt position are tied to the volatility of the collateral and the ability to efficiently liquidate positions that fall below health thresholds. The profitable and timely processing of liquidations is highly dependent on the price dynamics of the asset and the depth of liquidity available on DEXs.
Historically, gold has been characterized as a low-volatility asset, typically maintaining an annualized volatility of around 15%. This lower volatility profile makes gold-pegged tokens like XAUt a suitable form of collateral for stablecoin debt positions, especially as a specific subset of stablecoins can be set as borrowable under the E-Mode setup.
Source: XAUt/USDT Swap Liquidity, DefiLlama, January 17, 2026
Currently, approximately 2,786 XAUt can be swapped for $11.77M USDT within an 8.09% price impact, highlighting the substantial growth in on-chain liquidity depth.
Source: Odos.xyz, January 17, 2026
Most on-chain liquidity for Tether Gold currently sits in Uniswap pools on the Ethereum mainnet. There are currently four major pools that hold the bulk of XAUt liquidity: XAUt/WBTC ($7.9M), XAUt/USDT ($5.8M), XAUt/USDT ($980.2K), and XAUt/USDT ($340.1K).
Price Stability
Source: LlamaRisk, January 17, 2026
The price of XAUt is derived from transaction data in the XAUt/USDT Uniswap liquidity pool, while the XAU price is sourced from the XAU Chainlink oracle. As shown in the chart, XAUt has generally tracked the market price of gold closely over the past year, in line with its one-to-one physical gold backing model. Nonetheless, occasional price dislocations have been observed, especially earlier in 2025.
Historical Deviations
Source: LlamaRisk, January 17, 2026
The provided chart illustrates that the price deviation for XAUt has markedly decreased over time. While historical data reflects frequent and significant price dislocations due to thinner liquidity, more recent observations confirm that XAUt has become substantially less volatile, maintaining a consistent peg as on-chain depth has matured.
For the past 6 months, no major price fluctuations have been recorded. During this period, XAUt has consistently maintained its alignment with the underlying gold spot price, trading within the tight ±2% deviation band.
Borrow Demand
Source: Chaos Labs dashboard, January 17, 2026
Currently, a total of $25 million has been borrowed against XAUt collateral. USDe holds the largest share, with $18.3 million currently borrowed by a single address. Following USDe, USDT represents the second-largest portion of the market with $4 million in net borrowing.
Parameter Recommendations
Reflecting the Aave v3.6 parameter change proposal from Chaos Labs, enabling an XAUt e-Mode with a 70% LTV while maintaining the current $92M supply cap implies a maximum borrow capacity of approximately $64M against XAUt, which is higher than currently imposed by the $25M debt ceiling.
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 advice.