[Direct-to-AIP] Enhancing Market Granularity in Aave v3.6: Restricting Borrowability and Collateralization Outside of Liquid eModes

Governance
1

Summary

This proposal leverages the configurability improvements introduced in Aave v3.6 to strengthen risk isolation and improve parameter clarity. Specifically, it introduces:

  • LTV0 for assets not intended to serve as collateral outside of eModes.
  • Non-borrowable status for assets whose use cases are restricted to within their respective eModes.
  • Exclusive eMode participation, ensuring these assets are only active within targeted, high-correlation environments.

This aims to reduce systemic exposure, simplify risk management, and enable cleaner differentiation between general market assets and those intended for correlated or high-efficiency lending environments.

Motivation

Aave v3.6 represents an inflection point in the protocol’s ability to model and manage granular risk domains. Historically, reserve-level configurations in Aave v3 (prior to 3.6) constrained risk management, as all eMode behaviors were inherited from the global market configuration. This coupling led to inefficiencies, forced workarounds, and limited the ability to cleanly separate correlated-asset risk from the general pool.

Legacy Limitation: Coupled Configurations

Under Aave v3.0–v3.5, an asset’s global (base) configuration dictated its eMode behavior. Specifically:

  • An asset had to be collateralized outside of eMode to be collateralized within it.
  • Similarly, to be borrowable within an eMode, it had to be borrowable in the main pool.
  • If an asset’s base configuration had LTV = 0, it was treated as LTV = 0 in every eMode, triggering LTV0 rules globally.

This architectural coupling meant that assets could not be scoped to eMode-specific roles, e.g., collateral-only inside an eMode, or borrow-only within one. To accommodate, risk management often used low but nonzero LT values, which was not feasible for alternative assets with effective non-zero collateral values outside of E-mode, if and when reserves need updating in the future, or enabled borrowability globally with no practical use case, introducing unnecessary systemic exposure.

Emerging Complexity: Cross-Asset and Cross-Market Contagion

As Aave’s markets evolved with Liquid Staking Tokens (LSTs), Liquid Restaking Tokens (LRTs), and Principal Tokens (PTs), risk dependencies grew more complex.

Many of these assets are highly correlated with ETH or stablecoins and are designed to operate only within structured environments, where both collateral and borrowing assets adhere to tight risk parameters (e.g., the LST eMode).

Without configuration independence, some of these tokens remain borrowable in the general market even though demand exists exclusively within the eMode (e.g., borrowing wstETH only makes sense against rsETH, not against AAVE). Their presence as general borrowables artificially expands the exposure surface and increases the potential for recursive or unintended leverage. Their collateral eligibility outside of eModes complicates the dynamics of liquidation, volatility sensitivity, and the effective exposure of liquidity to the weakest links of the system.

Risk Management Efficiency

The inability to enforce LTV0 selectively has long been a point of friction for both risk managers and integrations.

Risk management often relied on LTV0 flags to gradually deprecate or isolate assets, e.g., to offboard an asset from a specific eMode or phase out its collateral use. Under the old model, setting LTV0 outside of an eMode would cascade that rule across all modes, making targeted adjustments impossible.

With v3.6 introducing per-eMode ltvzerobitmap, Aave can now:

  • Flag specific assets as LTV0 outside eModes (fully removing their collateral role in the main pool).
  • Keep them collateralizable within eModes where risk conditions are known and bounded.
  • Effectively migrate eMode risk configurations via setting LTV0 of an existing Emode and creating a new Emode with a lower LT, thereby not affecting existing users within the E-mode while subjecting new users to the updated config.

This enables Aave to evolve into a multi-environment structure, where the “main pool” functions as a conservative liquidity base layer, and eModes serve as risk-contained, higher-efficiency sub-markets, allowing independent caps, parameters, and monitoring per eMode without interference from the base layer.
In line with this efficiency, we provide the following specifications for relevant risk parameter optimizations at the protocol level, made possible by the launch of v3.6, aiming to minimize tail risks while minimizing the impact on protocol revenue.

Specification

Volatile Asset Collateral

This section outlines volatile assets whose configurations were unaffected by the recent asset deprecations and which should be treated as uncollateralizable outside of E-Mode. For assets where the vast majority of activity is driven by use cases such as borrowing stablecoins, we recommend implementing bespoke E-Modes to maximize demand while minimizing effective hypothetical exposure to these assets within the markets. Additionally, many of these assets have become increasingly illiquid over time, making them operationally unfeasible and economically risky to support as viable collateral options.

In the “aggregate demand impacted” column, we outline the nominal collateral utilization stemming from either outside the proposed emode configuration, outside current emode configurations, or in aggregate if no emode is specified or currently exists.

Asset Instance Current isCollateral (base) Recommended isCollateral (base) New Emodes Aggregate Demand Impacted
AAVE Base TRUE FALSE Aave/stablecoins $ 73,011.62
AAVE Arbitrum TRUE FALSE Aave/stablecoins $ 675,042.57
AAVE.e Avalanche TRUE FALSE $ 23,627.03
ARB Arbitrum TRUE FALSE ARB/stablecoins $ 203,046.23
LINK Arbitrum TRUE FALSE $ 608,475.89
LINK Ethereum Core TRUE FALSE LINK/stablecoins $ 3,726,090.68
LINK.e Avalanche TRUE FALSE $ 707,688.37
LINK Optimism TRUE FALSE $ 448,957.66
AAVE Optimism TRUE FALSE $ 243,869.34
OP Optimism TRUE FALSE $ 964,020.89
LINK Polygon TRUE FALSE $ 1,840,392.91
MaticX Polygon TRUE FALSE $ 126,233.78
AAVE Polygon TRUE FALSE Aave/stablecoins $ 44,900.88

New Emode Configurations (Volatile Asset Collateral)

LINK Stablecoins Ethereum Core

Parameter Value Value Value
Asset LINK USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 66% -
Liquidation Threshold 71% -
Liquidation Bonus 7% -

AAVE Stablecoins Base

Parameter Value Value Value
Asset AAVE USDC GHO
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 63% -
Liquidation Threshold 70% -
Liquidation Bonus 10% -

AAVE Stablecoins Arbitrum

Parameter Value Value Value
Asset AAVE USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 66% -
Liquidation Threshold 73% -
Liquidation Bonus 10% -

AAVE Stablecoins Polygon

Parameter Value Value Value
Asset AAVE USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 63% -
Liquidation Threshold 70% -
Liquidation Bonus 7.5% -

ARB Stablecoins Arbitrum

Parameter Value Value Value
Asset ARB USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 58% -
Liquidation Threshold 63% -
Liquidation Bonus 10% -

Low-demand collateral (outside of emode)

A subset of blue-chip assets, primarily representations of underlying assets such as LSTs, LRTs, and tokenized BTC, exhibit consistently low demand when used as collateral outside of their designated E-Modes. While these assets are fundamentally robust, their utility within the protocol is highly concentrated in a narrow, well-defined set of use cases. Beyond these contexts, they see little to no collateral uptake, resulting in inefficient parameterization and unnecessary residual risk.

Maintaining these assets as general-purpose collateral exposes the protocol to external debt dynamics, including hypothetical arbitrage activity and fundamental deviations driven by exogenous factors. Given the absence of meaningful organic demand and the asymmetric risk profile this introduces, it is prudent to pursue depreciation of their collateral functionality outside of E-Mode. For assets where the vast majority of activity is driven by use cases such as borrowing stablecoins, we recommend implementing bespoke E-Modes to maximize demand while minimizing effective hypothetical exposure to these assets within the markets.

Asset Instance Current isCollateral (base) Recommended isCollateral (base) New Emodes Aggregate Demand Impacted
ETHx Ethereum Core TRUE FALSE $ 792,341.26
rsETH Ethereum Core TRUE FALSE rsETH/stablecoins $ 1,593,054.63
osETH Ethereum Core TRUE FALSE $ 2,054,443.12
wstETH ZkSync TRUE FALSE $ 335,319.28
rETH Optimism TRUE FALSE $ 292,798.18
tBTC Base TRUE FALSE tBTC/stablecoins $ 75,767.79
tBTC Arbitrum TRUE FALSE tBTC/stablecoins $ 1,748.66
LBTC Base TRUE FALSE LBTC/stablecoins $ 150,120.37
sUSDe Ethereum Core TRUE FALSE $ 1,690,688.84
USDe Ethereum Core TRUE FALSE $ 5,488,524.05 (predominantly PYUSD)
USDe Plasma TRUE FALSE $ 8,400
EURC Avalanche TRUE FALSE EURC/stablecoins $ 634,695.36
EURC Base TRUE FALSE EURC/stablecoins $ 364,047.30
EURC Ethereum Core TRUE FALSE EURC/stablecoins $ 361,514.30
sDAI Gnosis TRUE FALSE $ 783,279.76
stS Sonic TRUE FALSE $ 825,639.07
ezETH Linea TRUE FALSE ezETH/stablecoins $ 13,591.68
wrsETH Linea TRUE FALSE wrsETH/stablecoins -

New Emode Configurations (Low-demand collateral (Outside of Emode))

EURC Stablecoins Avalanche

Parameter Value Value Value
Asset EURC USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 75% -
Liquidation Threshold 78% -
Liquidation Bonus 5% -

EURC Stablecoins Base

Parameter Value Value Value
Asset EURC USDC GHO
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 75% -
Liquidation Threshold 78% -
Liquidation Bonus 5% -

EURC Stablecoins Ethereum Core

Parameter Value Value Value Value
Asset EURC USDC USDT GHO
Collateral Yes No No No
Borrowable No Yes Yes Yes
Max LTV 75% -
Liquidation Threshold 78% -
Liquidation Bonus 5% -

rsETH Stablecoins Ethereum Core

Parameter Value Value Value
Asset rsETH USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 75% -
Liquidation Threshold 78% -
Liquidation Bonus 7.5% -

ezETH Stablecoins Linea

Parameter Value Value Value
Asset ezETH USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 72.5% -
Liquidation Threshold 75% -
Liquidation Bonus 7.5% -

LBTC Stablecoins Base

Parameter Value Value Value
Asset LBTC USDC GHO
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 75% -
Liquidation Threshold 78% -
Liquidation Bonus 5% -

tBTC Stablecoins Base

Parameter Value Value Value
Asset tBTC USDC GHO
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 72% -
Liquidation Threshold 75% -
Liquidation Bonus 7.5% -

tBTC Stablecoins Arbitrum

Parameter Value Value Value
Asset tBTC USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 72% -
Liquidation Threshold 75% -
Liquidation Bonus 7.5% -

Low-demand Stablecoins

Low-demand stablecoins exhibit limited utility across the protocol, with minimal usage as collateral, low levels of borrowing activity, and shallow on-chain liquidity. As a result, these assets generate negligible revenue while introducing asymmetric risk relative to their contribution to the protocol. Given their low risk–reward profile, we recommend reevaluating their continued support under existing configurations by restricting or removing their collateral and/or borrowable eligibility. Such adjustments would ensure that protocol resources and risk parameters remain aligned with assets that provide meaningful utility and economic value.

Asset Instance Current isBorrowable (base) Recommended isBorrowable (base) Current isCollateral (base) Recommended isCollateral (base) Aggregate Demand Impacted Aggregate Collateral Utilization
USDC.e Optimism TRUE FALSE TRUE FALSE $1,336,290.39 $118,378
FDUSD BNB TRUE FALSE TRUE FALSE $1,126,467.10 $45,163
USDC.e Arbitrum TRUE FALSE TRUE FALSE $1,331,285.30 $80,439
USDbC Base TRUE FALSE TRUE FALSE $423,559.73 $115,060
FRAX Avalanche TRUE FALSE TRUE FALSE $9,089.91 $193
USDC.e Polygon TRUE FALSE $4,264,694.03
sDAI Ethereum Core TRUE FALSE $158,437
m.USDC Metis TRUE FALSE $186,690
m.USDT Metis TRUE FALSE $215,589
m.DAI Metis TRUE FALSE $406.47

LST/wrapper borrowing outside of emode

The introduction of LSTs and wrapped BTC derivatives has led to highly specialized, correlated borrowing demand for such assets, stemming from both ETH LRT and BTC LST collateral. Under the current configuration, these assets remain borrowable by the broader pool, inadvertently expanding the hypothetical risk surface. The following changes prevent unnecessary exposure and simplify the borrow market, particularly for tokens whose demand originates from correlation-driven use cases (e.g., LSTs, LRTs).

Asset Instance Current isBorrowable (base) Recommended isBorrowable (base) Aggregate Demand Impacted
wstETH Arbitrum TRUE FALSE $219,631.96
wstETH Optimism TRUE FALSE $195,194.02
wstETH Scroll TRUE FALSE $507.61
wstETH Polygon TRUE FALSE $136,418.14
wstETH Ethereum Core TRUE FALSE $8,369,034.52
wstETH Ethereum Prime TRUE FALSE $ -
wstETH Gnosis TRUE FALSE $10,176.23
wstETH Linea TRUE FALSE $50,083.17
tBTC Base TRUE FALSE $15,287.88
cbETH Base TRUE FALSE $203,093.89
wstETH Base TRUE FALSE $169,108.87
cbETH Ethereum Core TRUE FALSE $58,977.19
FBTC Ethereum Core TRUE FALSE $156,748.08
WETH ZkSync TRUE FALSE $455.59
WPOL Polygon TRUE FALSE $240,543.50
WETH Gnosis TRUE FALSE $39,095.53
WETH Metis TRUE FALSE $236,063

Isolated Borrowing Config Optimization

Another benefit of the v3.6 implementation is the fact that migration outside isolation mode to approximate similar yet constrained behavior becomes possible. Specifically, an asset can be configured to remove collateral status from the base configuration while simultaneously creating a stablecoin Emode configuration. By contrast, migration out of isolation mode previously implied that, unless users were forcibly liquidated to achieve the same outcome, the protocol would be subjected to an increased risk surface area due to exposure to all collateral (cross-margin) and debt assets in the reserve, at equivalent risk parameterization for that of the isolation mode config.

As such, this section removes the isolation mode status of XAUt and XAUt0 on Ethereum Core and Plasma deployments, and initializes an Emode configuration with isolated exposure to stablecoin borrowing.

Asset Instance Current isCollateral (base) Recommended isCollateral (base) Additional Information
XAUt Ethereum Core TRUE FALSE remove isolation mode XAUT0 stablecoins emode
XAUt0 Plasma TRUE FALSE remove isolation mode XAUT0 stablecoins emode

New Emodes (Isolated Borrowing Config Optimization)

XAUt Stablecoins Ethereum Core

Parameter Value Value Value Value
Asset XAUt USDC USDT GHO
Collateral Yes No No No
Borrowable No Yes Yes Yes
Max LTV 70% -
Liquidation Threshold 75% -
Liquidation Bonus 6% -

XAUt0 Stablecoins Plasma

Parameter Value Value Value Value
Asset XAUt0 USDC USDT GHO
Collateral Yes No No No
Borrowable No Yes Yes Yes
Max LTV 70% -
Liquidation Threshold 75% -
Liquidation Bonus 7.5% -

Configuration Cleanup (Collateral)

Assets that are currently leveraging the 0.1% LT workaround outside of Emode. In the interest of protocol hygiene, we recommend nulling out its collateral status entirely.

Asset Instance Current isCollateral (base) Recommended isCollateral (base) Additional Information
PT-eUSDE-14AUG2025 Ethereum Core TRUE FALSE LT 0.1%
PT-eUSDE-29MAY2025 Ethereum Core TRUE FALSE LT 0.1%
PT-sUSDE-25SEP2025 Ethereum Core TRUE FALSE LT 0.1%
PT-sUSDE-31JUL2025 Ethereum Core TRUE FALSE LT 0.1%
PT-USDe-25SEP2025 Ethereum Core TRUE FALSE LT 0.1%
PT-sUSDE-27NOV2025 Ethereum Core TRUE FALSE LT 0.1%
PT-USDe-27NOV2025 Ethereum Core TRUE FALSE LT 0.1%
PT-USDe-31JUL2025 Ethereum Core TRUE FALSE LT 0.1%
ezETH Ethereum Core TRUE FALSE LT 0.1%
sDAI Ethereum Core TRUE FALSE LT 0.1%
sUSDe Ethereum Core TRUE FALSE LT 0.1%
tETH Ethereum Core TRUE FALSE LT 0.1%
MKR Ethereum Core TRUE FALSE
sUSDe Ethereum Prime TRUE FALSE LT 0.1%
tETH Ethereum Prime TRUE FALSE LT 0.1%
ezETH Ethereum Prime TRUE FALSE LT 0.1%
rsETH Ethereum Prime TRUE FALSE LT 0.1%
syrupUSDT Plasma TRUE FALSE LT 0.1%
weETH Plasma TRUE FALSE LT 0.1%
sUSDe Plasma TRUE FALSE LT 0.1%
PT-sUSDE-27NOV2025 Plasma TRUE FALSE LT 0.1%
PT-USDe-27NOV2025 Plasma TRUE FALSE LT 0.1%
rsETH Plasma TRUE FALSE LT 0.1%
sUSDe ZkSync TRUE FALSE LT 0.1%
wrsETH ZkSync TRUE FALSE LT 0.1%
ezETH Base TRUE FALSE LT 0.1%
wrsETH Base TRUE FALSE LT 0.1%
ezETH Arbitrum TRUE FALSE LT 0.1%
rsETH Arbitrum TRUE FALSE LT 0.1%
sUSD Optimism TRUE FALSE borrow 1
eUSDe Ethereum Core TRUE FALSE LT 0.1%
rsETH Avalanche TRUE FALSE LT 0.1%

Configuration Cleanup (Borrow)

While not directly a result of v3.6, assets that are currently leveraging the Borrow Cap 1 workaround outside of Emode. For the sake of protocol hygiene, we recommend disabling the borrowable status within the base configuration.

Asset Instance Current isBorrowable (base) Recommended isBorrowable (base) Additional Information
ARB Arbitrum TRUE FALSE Borrow Cap 1
LINK Arbitrum TRUE FALSE Borrow Cap 1
LUSD Arbitrum TRUE FALSE Borrow Cap 1
rETH Arbitrum TRUE FALSE Borrow Cap 1
weETH Arbitrum TRUE FALSE Borrow Cap 1
LINK.e Avalanche TRUE FALSE Borrow Cap 1
weETH Base TRUE FALSE Borrow Cap 1
Cake BNB TRUE FALSE Borrow Cap 1
wstETH BNB TRUE FALSE Borrow Cap 1
CELO Celo TRUE FALSE Borrow Cap 1
1INCH Ethereum Core TRUE FALSE Borrow Cap 1
BAL Ethereum Core TRUE FALSE Borrow Cap 1
CRV Ethereum Core TRUE FALSE Borrow Cap 1
ENS Ethereum Core TRUE FALSE Borrow Cap 1
ETHx Ethereum Core TRUE FALSE Borrow Cap 1
LDO Ethereum Core TRUE FALSE Borrow Cap 1
osETH Ethereum Core TRUE FALSE Borrow Cap 1
rETH Ethereum Core TRUE FALSE Borrow Cap 1
RPL Ethereum Core TRUE FALSE Borrow Cap 1
SNX Ethereum Core TRUE FALSE Borrow Cap 1
UNI Ethereum Core TRUE FALSE Borrow Cap 1
weETH Ethereum Core TRUE FALSE Borrow Cap 1
MKR Ethereum Core TRUE FALSE Borrow Cap 1
weETH Linea TRUE FALSE Borrow Cap 1
LINK Optimism TRUE FALSE Borrow Cap 1
LUSD Optimism TRUE FALSE Borrow Cap 1
OP Optimism TRUE FALSE Borrow Cap 1
rETH Optimism TRUE FALSE Borrow Cap 1
sUSD Optimism TRUE FALSE Borrow Cap 1
LINK Polygon TRUE FALSE Borrow Cap 1
MaticX Polygon TRUE FALSE Borrow Cap 1
weETH Scroll TRUE FALSE Borrow Cap 1
SCR Scroll TRUE FALSE Borrow Cap 1
weETH ZkSync TRUE FALSE Borrow Cap 1
wstETH ZkSync TRUE FALSE Borrow Cap 1
ZK ZkSync TRUE FALSE Borrow Cap 1
rsETH Ethereum TRUE FALSE Borrow Cap 1
LUSD Arbitrum TRUE FALSE Borrow Cap 1
LUSD Optimism TRUE FALSE Borrow Cap 1
EURS Polygon TRUE FALSE Borrow Cap 1

Next Steps

Following the imminent enshrining of the v3.6 upgrade into the protocol, the aforementioned risk parameter updates aim to be performed via Direct-to-AIP.

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0

9 Likes
[Direct to AIP] Enable XAUt e-Mode on Aave v3.6 Core Instance
[Direct to AIP] Enable XAUt e-Mode on Aave v3.6 Core Instance
[Direct to AIP] MKR and USDtb Oracle adjustments
2

This is an excellent and much awaited upgrade.

Thanks a lot for working on it.

5 Likes
[ARFC] Onboard frxUSD to Aave V3 Core Instance on Ethereum
3

Summary

LlamaRisk supports the proposed parameter changes to align with the Aave v3.6 upgrade. We endorse the cleanup of legacy configurations and the enforcement of stricter E-Mode boundaries for volatile and correlated assets.

To our knowledge, USDC is not present on Plasma, we recommend removing it from the proposed XAUt0 Stablecoins Plasma E-Mode.

Volatile Asset Collateral

Establishing E-Modes with specified borrowed assets, while setting isCollateral false in the base reserve configuration, would reduce the protocol’s exposure to assets that can be borrowed against the listed volatile assets. This approach limits borrowing to select stablecoins as defined in the respective E-Mode configurations.

For the assets where no E-Mode has been established, the table below summarizes the corresponding liquidity depth and the aggregate demand impacted (as of December 19, 2025).

Asset Instance Liquidity within LB (DeFiLlama) Aggregate Demand Impacted (Chaos Labs) Estimated Annual Revenue Impacted
AAVE.e Avalanche $ 21,000 $ 259,809 $750
LINK Arbitrum $ 890,000 $ 6,604,596 $22,450
LINK.e Avalanche $ 95,000 $ 666,507 $1,620
LINK Optimism $ 25,000 $ 349,896 $970
AAVE Optimism $ 40,000 $ 239,258 $560
OP Optimism $ 250,000 $ 752,129 $2,280
LINK Polygon $ 887,500 $ 1,462,799 $13,280
MaticX Polygon $ 42,000 $ 44,564 $380

For each of these assets, USDC and USDT together account for roughly 80% of the aggregate demand. Based on the impact on liquidity and aggregate demand, LINK on Arbitrum stands out as an outlier. If a stablecoin E-mode (USDC, USDT) were to be set up, it would capture the majority of both the aggregate demand and the associated revenue. The annual protocol revenue is calculated using the following formula, which annualizes the current debt, where i indexes borrowed assets in the set A.

image
image808Ă—119 10.2 KB

Low-demand Collateral (outside E-Mode)

For low-demand collateral outside of E-Mode, restricting LSTs and LRTs to be used as collateral only within their existing E-Modes ensures that the borrowed and collateral asset prices remain correlated under the Aave Oracle configuration. This significantly reduces the likelihood of bad debt.

We note that the following assets had their LTV and LT parameters increased under the new stablecoin E-Modes compared to the base reserve configuration, resulting in a less conservative risk calibration:

Asset Instance LTV Change LT Change LB Change
rsETH Ethereum Core 72% to 75% 75% to 78% -
LBTC Base 68% to 75% 73% to 78% 8.5% to 5%

Low-demand Stablecoins

Deprecating stablecoins with low demand as both collateral and borrowing assets would reduce the protocol overhead associated with maintaining these assets. While the aggregate demand for Bridged USDC (USDC.e) across Optimism, Arbitrum, and Polygon appears relatively high, at nearly $7M, it is essential to note that native USDC has already been onboarded on all these instances. Disabling both collateral and borrowing would therefore facilitate user migration without affecting the health of existing user positions.

LST/wrapping Borrowing

Disabling the borrowing of LSTs and wrappers outside their respective E-Modes would restrict borrowing activity to similarly price-correlated assets, reducing the likelihood of bad debt. Disabling borrowing would not affect the health of existing user positions, as users would be required to migrate their positions. Low aggregate demand has been observed for these assets, with the exception of wstETH on Ethereum Core, which has a borrowing demand of $26.71M outside E-Modes (primarily composed of WETH collateral).

Other Configuration Cleanup

Removing collateral status for assets currently relying on the 0.1% LT workaround, and disabling borrowing for assets with a borrow cap of 1, would not affect the health of existing user positions. Additionally, moving XAUt from isolation mode to stablecoin E-Modes with limited assets would reduce protocol exposure to broader collateral without introducing additional risks, as the LT and LTV parameters remain unchanged.

As a necessary configuration correction, USDC should be removed from the XAUt0 Stablecoins Plasma E-Mode, as the asset is not available on the chain.

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.

LlamaRisk - Monthly Community Update
4

We will process to a implementation in 2 parts following instance split made for v3.6 upgrade

2 Likes
5

Where can we track implementation progress for this? Thanks!

6

As all AIPs on GitHub - bgd-labs/aave-proposals-v3. First part is under review second part will be implemented this week

2 Likes