Dynamic E-Mode Router for Capital Efficiency on Aave

Development
1

Summary

I am currently developing a Dynamic E-Mode Router, a middleware layer designed to improve capital efficiency for users interacting with Aave by automatically optimizing the usage of E-Mode categories.

The idea is to remove the manual decision-making required to activate E-Mode and manage borrowing parameters, and instead route positions through an automated strategy that maximizes borrowing capacity while maintaining a target health factor.

This post is intended to gather feedback from the community and core contributors while the project is still in development.

Problem

Aave’s E-Mode (Efficiency Mode) enables higher borrowing power for assets with strong price correlation (e.g., stablecoins).

However, in practice:

  • Users must manually enable the appropriate E-Mode category.
  • Borrowing decisions are often made without considering optimal capital efficiency.
  • Risk management (health factor monitoring) is entirely manual.

As a result, many users underutilize E-Mode, leaving capital efficiency on the table.

Example scenario:

  • Deposit: $100k USDC
  • Standard borrow capacity: ~75% LTV
  • E-Mode borrow capacity: ~90% LTV

Despite this difference, most users do not actively manage E-Mode configurations.

Proposed Solution

The Dynamic E-Mode Router introduces a routing layer that automatically manages E-Mode configuration and borrowing strategies.

Core functions include:

  1. Automatic E-Mode activation when eligible collateral and borrow assets are detected.
  2. Borrow optimization to maximize capital efficiency within safe risk parameters.
  3. Health factor targeting, allowing positions to maintain a configurable risk range.
  4. Automated monitoring for collateral and debt positions.

The router acts as an execution layer between the user and the Aave Pool contract.

Architecture (High Level)

User

↓

Router Contract

↓

Aave Pool (V3)

Workflow:

  1. User deposits collateral through the router.
  2. Router evaluates whether E-Mode should be enabled.
  3. Router configures E-Mode category if applicable.
  4. Borrow positions are executed based on a predefined strategy.
  5. Health factor is monitored to maintain a safe borrowing range.

Current Development Status

The project is currently under development.

Progress so far:

  • Core smart contract structure implemented
  • E-Mode configuration logic integrated
  • Borrow routing logic partially implemented

Planned next steps:

  • Testnet deployment
  • Health factor optimization module
  • Risk simulations and testing
  • Basic front-end interface

Repository:

GitHub: GitHub - anxbt/dynamic-emode-router · GitHub

Documentation:

PDF Overview: dynamic-emode-router/paper/main.pdf at main · anxbt/dynamic-emode-router · GitHub

Potential Extensions

Looking ahead, this router could potentially expand into:

  • Automated leverage strategies within E-Mode
  • Dynamic risk parameter adjustments
  • Strategy layers compatible with future Aave architectures (e.g., V4 spoke-based markets)

Questions for the Community

I would appreciate feedback on the following points:

  1. Would an automated E-Mode optimizer be useful for Aave users?
  2. Are there specific risk scenarios that should be prioritized (e.g., stablecoin depegs, oracle delays)?
  3. Would this type of routing layer introduce any protocol-level concerns?
  4. Are there existing tools that already solve this problem effectively?

Closing

The goal of this project is to improve the usability and capital efficiency of Aave by reducing manual configuration requirements around E-Mode.

Feedback from the community would be extremely valuable at this stage of development.