My understanding is that for Aave, if there is a sharp decline in prices or a ton of congestion such that the protocol can’t liquidate assets between the trigger LTV % and 100% LTV, and there is therefore more debt than collateral, that the staked Aave gets slashed as a buffer before lenders start to experience losses.
However, this site shows $338mm of staked Aave and only 30% can be slashed. Aave - Open Source Liquidity Protocol
That means only ~$100mm of buffer is available as a cushion - on $7.3bn of TVL: AAVE: TVL and stats - DefiLlama
When learning about Aave, I had always assumed this cushion was much more significant. There doesn’t seem to be much cushion at all.
Am I thinking about this correctly, that there is very little cushion in that tail risk scenario?
What are the barriers to more Aave being staked? I personally use Polygon Aave and was bummed to learn I can only stake on Ethereum which has high fees. Is there a plan to add staking to Polygon or other chains so we can take part in yield as well as add more cushion for tail risk losses?
Has there ever been loan losses? If not, can we extrapolate that given there have been big downturns before and there were no issues, there are unlikely to be future situations where there are impairments on loans?