LlamaRisk - Monthly Community Update

[LlamaRisk]

LlamaRisk - Monthly Community Update

October 2025

Overview

LlamaRisk presents our October 2025 monthly update, summarizing key activities and outlining upcoming priorities.

Highlights

Recommendations and inputs

Asset onboarding

• [Direct-to-AIP] Onboard wrsETH to Aave v3 Plasma Instance - Supported the onboarding while flagging that an EOA was assigned the BRIDGER_ROLE. Engaged with the KelpDAO team to successfully migrate this role to a 3/6 multisig.
• [Direct-to-AIP] Onboard wstETH to Aave v3 Plasma Instance - Recommended pausing the onboarding until a Chainlink wstETH/stETH price feed is live, while noting the limited DEX liquidity on the newly launched chain.
• [Direct to AIP] Onboard sUSDe and USDe January expiry PT tokens on Aave V3 Plasma Instance - Supported the onboarding given the long maturity horizon that justifies integration efforts and the minimal incremental risks posed to Aave by the liquidity profile of Ethena-related assets and their corresponding Pendle pools.
• [Direct to AIP] Onboard XPL on Aave V3 Plasma Instance - Supported the onboarding while noting the asset’s elevated price volatility during launch, and recommended setting conservative parameters, particularly around the liquidation bonus and LTV-to-LT buffer, to mitigate potential liquidation stress.
• [Direct to AIP] Onboard syrupUSDT to Aave V3 Plasma Instance - Supported the onboarding while flagging the lack of a timelock on contract upgrades (currently being addressed by the Maple team) and the high LP concentration within a single DEX venue.
• [Direct to AIP] Onboard syrupUSDC to Aave V3 Base Instance - Did not recommend onboarding due to the minimal onchain supply (~$100) on the network, and suggested revisiting the proposal once sufficient liquidity is bootstrapped.
• [ARFC] Onboard USDai & sUSDai to Aave V3 Arbitrum Instance - Did not support the onboarding due to multiple risk factors, including GPU collateral liquidity uncertainty, the long 7-day sUSDai liquidation window, USDai’s peg instability arising from its capped supply, and legal design considerations that classify it under a risk category not yet approved within the AAcA framework.
• [ARFC] Onboard stUSDS to Aave V3 Core Instance - Did not recommend onboarding at the current stage due to several obstacles, including high counterparty concentration, conditional liquidity for redemptions tied to borrowing utilization, a non-standard oracle with manual override capabilities determining collateral pricing, a manual liquidation process, and the fact that stUSDS is explicitly designed to absorb losses from liquidation shortfalls.
• [ARFC] Onboard USDG to Aave V3 Core Instance - Supported the onboarding conditional on the establishment of a formal bug bounty program, with collateral use disabled at launch. Highlighted the primary risk being off-chain holding concentration within a single bank.
• [ARFC] Onboard stAVAX to Aave V3 Avalanche Instance - Highlighting the introduction of a new 15-day withdrawal mechanism that could create friction for Aave liquidations. Previously assessed risks remain, including limited transparency in protocol function controls via Multisig Labs and 60% of the onchain supply concentrated within three holders.
• [Direct to AIP] Onboard syrupUSDT to Aave V3 Core Instance - Supported the onboarding conditional on the establishment of a DEX with meaningful depth, which the team implemented shortly after. Highlighted the circular liquidity dependency arising from all of Maple’s liquid USDT reserves being deployed in Aave, making syrupUSDT redemptions reliant on Aave V3 Core USDT reserve liquidity.
• [Direct to AIP] Onboard rsETH to Aave V3 Avalanche Instance - Supported the onboarding while highlighting that 96% of the onchain supply is held within an Euler vault and a single DEX liquidity pool, thereby recommending conservative parameters.

New chain

• [ARFC] Deploy Aave v3 on X Layer - Supported the deployment while noting the comparatively low DeFi TVL and activity primarily driven by incentive-based flows, and provided asset-specific recommendations since the proposed assets are new to Aave markets and require individual assessments.
  • USDG - Supported the listing while noting limited onchain DEX liquidity, with the majority of trading activity occurring through centralized venues.
  • xBTC - Supported the onboarding while noting that initial demand may remain limited due to low circulating supply and liquidity on the network, with OKX having addressed previously identified legal concerns regarding BTC custody.
  • OKB - Recommended onboarding while highlighting key risks, such as low and fragmented DEX liquidity.

GHO related

• [ARFC] Launch GHO on X Layer & Set ACI as Emissions Manager for Rewards - Supported the launch and proposed parameters while noting the non-zero GHO burn fee GSM configuration on X Layer, with its associated risk implications discussed in a separate thread.
• [ARFC] Launch GHO on Plasma & Set ACI as Emissions Manager for Rewards - Supported the GHO bootstrapping plan for Plasma along with the newly proposed GHO/USDT0 E-mode, while noting the minimal risk exposure arising from temporary USDT borrow rate spikes, which typically self-correct within hours.

Misc.

• [ARFC] USDC (old) deprecation on Gnosis Chain Instance - Supported the proposal while recommending an immediate 80% increase to the Reserve Factor and suggesting a full reserve freeze as a more effective alternative to modifying supply caps.
• Chaos Labs Risk Stewards - Slope2 Parameter Adjustments for Risk Oracle Deployment - Supported the proposal while recommending increasing the maximum absolute change beyond 4% to enhance responsiveness during market stress, alongside a phased rollout beginning with historically high-utilization reserves such as USDT, WETH, and USDe on Core.
• [Direct-to-AIP] Full Deprecation of DPI Across Aave Deployments - Supported the proposal following Chainlink’s deprecation of the DPI price feed and agreed with using a fixed oracle price approach, given the minimal risks posed by already frozen DPI markets.
• [Direct to AIP] Enable pyUSD as collateral on Aave V3 Core Instance - Supported enabling pyUSD as collateral while highlighting high DEX liquidity concentration, with the leading pool newly bootstrapped and primarily sourced from a Spark strategy, and recommended closely monitoring liquidity dynamics before further cap adjustments.
• [Direct-to-AIP] Add Fluid Protocol to flashBorrowers on Plasma - Supported the initiative along with waiving the flashloan fee.
• [ARFC] Service Provider Compensation Reform for V4 Alignment - Supported the proposal as it increases Aave alignment and the reset streams provide operational certainty and a stable runway for service providers heading into the launch of Aave V4.
• [ARFC] Deprecation of Low Demand Volatile Assets on Aave V3 Instances - Supported the proposal given the prudent trade-off of significantly reducing protocol tail-risk while renouncing only modest revenue streams.
• [Direct to AIP] Add rlUSD as Collateral - Didn’t recommend enabling RLUSD as collateral primarily due to the absence of a timelock on contract upgrades, along with lack of a bug bounty program and declining DEX liquidity despite supply tripling, while noting the Ripple team’s ongoing efforts to address these issues.

Research and analysis

• [ARFC] Umbrella Coverage Expansion - Proposed an update to the existing Umbrella target liquidity levels following a 54% increase in total debt since the mechanism’s initial launch, including raising USDT target liquidity, lowering GHO target liquidity, and adding two new assets, USDe and WBTC, to the safety module, following discussion on the low risks posed by correlated collateral with BGD Labs.
• LlamaRisk Insights: Addressing Ethena’s Aave Exposure - Published a long-form analysis examining Ethena’s exposure on Aave and the associated risks from large-scale stablecoin-backed asset deposits into the protocol. The October 10 flash crash reinforced our assessment that the risks associated with USDe exposure on Aave are well contained.
• When Pricing Breaks: A USDe Case Study - Examined how collateral pricing design determines system outcomes under stress using USDe during the Oct 10, 2025 market crash as a case study, and outlined a path beyond static pegs using LlamaGuard risk-managed data feeds.
• [ARFC] Ethena USDe Risk Oracle and Automated Freeze Guardian - Posted an early-stage proposal for an enhanced Ethena USDe risk oracle and an automated freeze guardian to kick off discussion on fundamental upgrades to Aave’s pricing strategies and support a safe exposure to Ethena’s assets.

Community Engagement

• Horizon Weekly Highlights - Continued collaborating with the Horizon team on due diligence for assets, cap changes, and delivering weekly update summarizing operations, with a focus on utilization metrics, user behavior, and parameter changes.
• Bug Bounty Call Out - Continued our weekly Twitter series highlighting assets onboarded on Aave with low bug bounty coverage, providing clear updates and context based on our Bug Bounty Landscape Report.
• Newsletter: This Week in Aave - Continued delivering weekly roundups of Aave governance updates while enhancing content with deeper insights for stakeholders and users.

Upcoming Focus Areas

• Aave V4 Preparation - Actively working on internal V4-related R&D while participating in the Office Hours for DAO Service Providers to align on technical and risk framework updates.

We welcome community feedback and suggestions. Please share any questions, ideas, or areas where you would like increased focus from the LlamaRisk team.