LlamaRisk - Monthly Community Update

Governance
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LlamaRisk - Monthly Community Update

May 2026

Overview

LlamaRisk presents our May 2026 monthly update, summarizing key activities and outlining upcoming priorities. May was an exceptionally active month, combining the operational recovery following the rsETH/Kelp exploit with the continued scaling of Aave V4 across the Core, Prime, and Plus hubs.

Highlights

Recommendations and inputs

Asset onboarding

New chain

  • [ARFC] Aave V4 Activation on Ethereum Mainnet - Proposed additional rounds of add and draw cap increases across the Core, Prime, and Plus hubs, raising the total supply cap ceiling to approximately $208M to accommodate growing demand as multiple reserves approached limits. Also introduced smaller incentive-driven cap increases following the launch of frxUSD and USDG incentive programs.

Misc.

  • [ARFC] Aave Protocol Bug Bounty Programs Restructure - Supported restructuring the Aave DAO bug bounty into subsystem-specific programs with progressively scaled payouts tied to TVL, and recommended expanding coverage to non-liquidity infrastructure such as applications, domains, and Aave products to ensure broader protocol protection.

Research and analysis

  • [Direct-to-AIP] Supply and Borrow Cap Changes on Aave V3 Aptos - Recommended initial containment measures through cap reductions due to limited market adoption, proposing tighter supply caps at roughly 1.25× current utilization to restrict new exposure while preserving functionality for existing positions, including collateral additions and health factor improvements.
  • [Direct-to-AIP] CAPO SnapshotRatio Update Across Aave V3 - Proposed updating the snapshotRatio to address stale snapshots and growing spread between the CAPO upper bound and current ratios across Aave V3, mitigating inflation attack scenarios where collateral overpricing could lead to undercollateralized positions and protocol bad debt.
  • [Direct-to-AIP] WETH Unfreeze and LTV Restoration Across Aave V3 Instances - Recommended restoring WETH LTVs on Ethereum Core, Prime, Arbitrum, Base, Mantle, and Linea to pre-Kelp exploit levels, contingent on successful recovery milestones including liquidation of attacker positions, securing DeFi United funds, resolution of the attacker’s rsETH exposure, and court approval for transferring recovered ETH to Aave LLC.

Protocol operations and monitoring

Beyond the published proposals, the team carried out substantial operational and monitoring work over the month:

  • Supported the post-exploit recovery, including derisking long-tail assets on Aave Core and analyzing Ethena looping exposure under stress conditions.
  • Assisted in the migration of Aave V4 to Chainlink SVR (Smart Value Recapture) price feeds.
  • Ran LayerZero bridge reviews and a low-TVL oracle reliability review across instances.
  • Reviewed Risk Steward cooldown handling and formalized internal Risk Steward processes and tooling.
  • Completed Emergency and Guardian signer set updates following Chaos Labs’ departure from the DAO.

Risk Stewards

The following proposals were published by us to update risk parameters via risk stewards:

Community Engagement

Upcoming Focus Areas

Operational tempo remains high through June, weighted toward Aave V4 expansion. Active and queued workstreams include:

Aave V4 growth and parameters

  • Further add and draw cap increases across the Core, Prime, and Plus hubs as demand grows.
  • Reinvestment controller parameter management and liquidation parameter tuning.
  • Interest rate model coordination, including GNO with the Gnosis team.
  • Premium risk configuration for rsETH on Aave V4.

Asset onboarding pipeline

  • New Ethena PT listings across Aave V3 and V4.
  • Reviews of EURCV, USAT, mETH, Babylon BTC, cirBTC, and Lombard BTC.
  • Circle Arc chain and market-structure review, and the USDG market price feed.
  • lsETH parameter revision.

Risk tooling and monitoring

  • Aave V4 monitoring build-out and a dashboard for manual Risk Steward updates.
  • Historical health-factor analytics and a low-TVL oracle reliability review.

Frameworks and research

  • Refinement of our overall risk framework and asset-listing methodology.
  • Public-facing research on V4 Umbrella.

Real World Assets and Horizon

  • Continued due diligence and support across the Horizon RWA pipeline, including user-persona and v4 structure work.

V3 maintenance and new chains

  • EtherFi Scroll bridge deprecation follow-up.
  • Support for Aave Protocol on Monad and Aave V4 on Avalanche.

Risk Stewards

  • Day-to-day parameter operations across Aave V3 and V4.

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