Risk Stewards: Supply and Borrow Cap Adjustments on Aave V3 / 2026.04.24

Risk
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Summary

Following the Kelp-induced market stress and the subsequent unwinding cycle, supply across many Aave V3 reserves has contracted well below previously calibrated caps. This proposal recommends a coordinated cap reduction across the affected reserves on Aave V3, removing the stale headroom that accumulated as positions exited the protocol, and deprecating a small set of reserves that no longer serve their listed markets.

The intent is twofold: (i) bring caps back in line with realistic near-term usage so that concentration risk does not reappear silently if a single large deposit arrives between monitoring cycles, and (ii) keep the path back to higher caps short and procedurally cheap, with each reduction sized to remain reversible through the Risk Steward framework as conditions normalize.

Context

The recent stress event prompted broad de-risking across the protocol. Many reserves now sit at low utilization of their existing caps, with the gap between current cap and current supply ranging from material to extreme. Caps that sit far above actual usage provide no operational benefit and expose the protocol to abrupt concentration if a single depositor enters during a parameter review.

Rather than freezing reserves outright, the approach here is to right-size caps to current conditions while leaving room for organic recovery, and to mark a small subset of reserves for deprecation where their continued presence no longer serves the market they sit in.

Methodology

Adjustments are grouped by asset role and observed behavior rather than applied uniformly across the book. Each group has its own rationale, summarized below.

Collateral assets

For collateral-enabled reserves, supply caps are reduced so that the resulting headroom above current supply sits in the range of 50% to 75%. This buffer is wide enough to absorb plausible recovery flows without triggering an immediate cap top-out, and tight enough to keep concentration manageable. The sizing also preserves the option to lift the cap back toward its prior level in a single Risk Steward action if the unwinding reverses, since the steward’s per-action limit of ±100% relative to the current cap covers a one-step revert from the new value.

Where a collateral reserve has not historically attracted meaningful borrow activity, the borrow cap is set to 1, a soft freeze that closes new borrowing without formally freezing the reserve. This removes unused configuration surface and concentrates the asset’s role on the supply side, where it actually serves the market.

Stablecoins

Stablecoin reserves receive a wider buffer on both supply and borrow caps. Stable liquidity is most likely to return first as conditions normalize, and oversized headroom in stablecoins carries less concentration risk than in volatile collateral. Borrow caps are set so that returning supply can be productively borrowed without requiring a fresh governance action in the immediate aftermath of this cleanup.

Reserves with no proven borrow usage

A subset of assets across markets has shown no meaningful borrow demand since listing or since the last parameter review. For these, the borrow cap is set to 1. Supply caps for these assets are still adjusted under the collateral or stablecoin rule above, depending on the asset type. The borrow side is closed because there is no demand to serve, not because of a risk concern with the asset itself.

Deprecation track

A small group of reserves is being moved toward deprecation via a soft freeze, with the supply cap set to 1. Soft-freeze leaves existing positions untouched while preventing new deposits, which is the cleanest way to retire a reserve without disrupting users still holding it. Three sub-cases are included:

  • Persistently low utilization across markets: assets such as mUSD that have not gained meaningful traction on the markets where they are listed. Continuing to maintain calibrated caps for them is operational overhead that does not offset the benefits.
  • Assets that no longer fit the market composition: USDS on Ethereum Prime, where the stablecoin lineup of the instance has shifted, and USDS no longer plays a useful role alongside the assets that have grown around it.
  • Matured Pendle Principal Tokens: PTs whose maturity date has passed, on Ethereum Core and Plasma. Once a PT matures, supply unwinds mechanically toward zero, and the reserve no longer serves its original purpose, so soft-freeze formalizes a state the asset is already converging on.

Markets and assets not addressed

A few markets and assets are intentionally excluded from this round:

  • X Layer and MegaETH: both deployments are entering their bootstrapping phase shortly, with caps already calibrated to the incoming liquidity commitments. Adjusting them now would conflict with the launch parameters and is left out of scope.
  • Polygon: the market currently exhibits balanced supply-to-cap usage across reserves, with no material headroom to reclaim. Changes are omitted at this time, and the market will be revisited on the next regular cadence.
  • GHO: GHO parameters are managed under the broader multichain GHO strategy curated by the GHO Stewards and remain outside the scope of this proposal.

Specification

The full parameter set is provided in the tables below, grouped by chain. Each entry lists the current cap, the proposed new cap, and the resulting utilization at the new value.

Collateral assets, supply, and borrow cap reductions

Asset Chain Current Supply cap Proposed Supply cap Current Borrow cap Proposed Borrow cap
AAVE Arbitrum 43,000 21,500 -
ARB Arbitrum 101,300,000 52,000,000 -
LINK Arbitrum 1,889,000 1,000,000 -
rETH Arbitrum 1,600 1,300 -
WBTC Arbitrum 5,000 3,500 416
weETH Arbitrum 121,000 70,000 -
wstETH Arbitrum 69,000 34,000 1,300
BTC.b Avalanche 6,000 3,000 79
LINK.e Avalanche 308,000 155,000 -
sAVAX Avalanche 12,130,000 10,000,000 -
WETH.e Avalanche 38,000 20,000 31,930 18,000
AAVE Base 30,000 10,000 -
cbBTC Base 5,800 3,500 380
cbETH Base 9,000 5,000 1,010
ezETH Base 5,000 500 -
LBTC Base 80 50 -
tBTC Base 30 20 -
weETH Base 150,000 100,000 -
wstETH Base 41,000 25,000 1,200
Cake BSC 1,200,000 600,000 -
ETH BSC 13,000 10,000 8,000
WBNB BSC 187,000 160,000 12,000
WETH Celo 3,000 2,100 900
1INCH Ethereum Core 18,000,000 7,000,000 -
AAVE Ethereum Core 1,850,000 1,000,000 -
BTC.b Ethereum Core 600 10 -
cbBTC Ethereum Core 32,000 25,000 1,440
CRV Ethereum Core 17,250,000 11,000,000 -
eBTC Ethereum Core 1,800 400 -
ENS Ethereum Core 100,000 50,000 -
ezETH Ethereum Core 120,000 20,000 -
LBTC Ethereum Core 5,700 3,000 -
LDO Ethereum Core 5,000,000 2,000,000 -
LINK Ethereum Core 20,000,000 15,000,000 1,000,000
osETH Ethereum Core 200,000 180,000 -
rETH Ethereum Core 90,000 60,000 -
RPL Ethereum Core 840,000 550,000 -
tBTC Ethereum Core 3,000 2,800 -
tETH Ethereum Core 10,000 1,000 -
UNI Ethereum Core 6,000,000 1,500,000 -
WBTC Ethereum Core 49,875 42,000 4,000
weETH Ethereum Core 2,600,000 2,200,000 -
WETH Ethereum Core 3,800,000 3,400,000 3,600,000 3,060,000
wstETH Ethereum Core 1,760,000 1,400,000 -
XAUt Ethereum Core 30,000 25,000 -
tETH Ethereum Prime 60,000 45,000 -
WETH Ethereum Prime 150,000 60,000 143,000 54,000
wstETH Ethereum Prime 200,000 100,000 -
GNO Gnosis 140,000 110,000 20,000
WETH Gnosis 4,600 3,500 2,400
wstETH Gnosis 15,000 13,000 150
ezETH Linea 35,000 20,000 -
WBTC Linea 100 40 -
weETH Linea 64,000 5,000 -
wstETH Linea 7,000 500 1,000 450
FBTC Mantle 50 30 -
WMNT Mantle 5,000,000 1,900,000 -
LINK Optimism 235,000 100,000 -
OP Optimism 14,050,000 8,000,000 -
rETH Optimism 1,200 1,000 -
WBTC Optimism 480 350 32
WETH Optimism 23,000 20,000 16,000
wstETH Optimism 23,000 16,000 190
weETH Plasma 52,000 10,000 -
XAUt0 Plasma 7,000 3,500 -
stS Sonic 126,000,000 100,000,000 -
WETH Sonic 5,000 2,500 500
wS Sonic 300,000,000 220,000,000 130,000,000

Stablecoin reserves, supply, and borrow cap reductions

Asset Chain Current Supply cap Proposed Supply cap Current Borrow cap Proposed Borrow cap
DAI Arbitrum 9,815,000 4,900,000 7,481,000 4,410,000
USDC Arbitrum 512,300,000 300,000,000 386,900,000 270,000,000
USDC.e Arbitrum 4,412,000 1,700,000 2,395,000 1,530,000
USDâ‚®0 Arbitrum 179,000,000 120,000,000 112,400,000
AUSD Avalanche 1,371,000 1,000,000 1,142,000 900,000
DAI.e Avalanche 9,639,000 6,200,000 5,414,000
EURC Avalanche 12,000,000 6,000,000 11,200,000 5,400,000
sUSDe Avalanche 5,000,000 1,000,000 -
USDC Avalanche 240,300,000 150,000,000 173,800,000 135,000,000
USDe Avalanche 5,000,000 1,000,000 4,250,000 700,000
USDt Avalanche 144,500,000 100,000,000 88,850,000
EURC Base 35,830,000 25,000,000 12,000,000
syrupUSDC Base 200,000,000 100,000,000 -
USDbC Base 1,193,000 500,000 1,085,000 450,000
USDC Base 685,200,000 230,000,000 485,000,000 207,000,000
FDUSD BSC 12,000,000 1,200,000 10,800,000 1,080,000
USDC BSC 49,080,000 21,000,000 28,710,000 18,900,000
USDT BSC 164,000,000 67,000,000 117,000,000 60,300,000
EURm Celo 160,000 100,000 144,000 90,000
USDC Celo 3,500,000 2,000,000 3,150,000 1,800,000
USDm Celo 1,300,000 1,100,000 1,170,000 990,000
USDâ‚® Celo 24,000,000 5,800,000 7,200,000 5,220,000
EURC Ethereum Core 105,000,000 46,000,000 96,000,000 41,400,000
LUSD Ethereum Core 7,000,000 5,000,000 -
mUSD Ethereum Core 5,000,000 1,000,000 4,500,000 900,000
PT-srUSDe-25JUN2026 Ethereum Core 120,000,000 100,000,000 -
PT-sUSDE-7MAY2026 Ethereum Core 550,000,000 300,000,000 -
PT-USDe-7MAY2026 Ethereum Core 45,000,000 30,000,000 -
PT-USDG-28MAY2026 Ethereum Core 80,000,000 40,000,000 -
PYUSD Ethereum Core 500,000,000 300,000,000 300,000,000 270,000,000
RLUSD Ethereum Core 750,000,000 100,000,000 300,000,000 27,900,000
sUSDe Ethereum Core 1,700,000,000 900,000,000 -
syrupUSDT Ethereum Core 150,000,000 100,000,000 -
USDC Ethereum Core 7,500,000,000 5,000,000,000 7,000,000,000 4,500,000,000
USDe Ethereum Core 2,700,000,000 2,000,000,000 2,500,000,000 1,800,000,000
USDS Ethereum Core 80,000,000 50,000,000 76,000,000 34,200,000
USDT Ethereum Core 9,500,000,000 6,000,000,000 8,800,000,000 5,400,000,000
USDC Ethereum Prime 30,000,000 25,000,000 27,600,000 22,500,000
EURe Gnosis 27,000,000 25,000,000 22,500,000
sDAI Gnosis 24,000,000 20,000,000 -
USDC.e Gnosis 12,000,000 10,000,000 11,000,000 9,000,000
mUSD Linea 5,000,000 500,000 4,000,000 450,000
USDC Linea 25,000,000 20,000,000 23,000,000 18,000,000
USDT Linea 25,000,000 20,000,000 23,000,000 18,000,000
sUSDe Mantle 320,000,000 300,000,000 -
USDC Mantle 80,000,000 60,000,000 76,000,000 54,000,000
USDe Mantle 160,000,000 100,000,000 72,000,000
USDT0 Mantle 800,000,000 450,000,000 550,000,000 405,000,000
DAI Optimism 2,000,000 1,000,000 1,800,000 900,000
USDC Optimism 39,940,000 28,000,000 27,270,000 25,200,000
USDC Bridged Optimism 2,000,000 1,800,000 -
USDT Optimism 14,570,000 10,000,000 9,060,000
sUSDe Plasma 1,575,000,000 1,000,000,000 -
syrupUSDT Plasma 550,000,000 450,000,000 -
USDe Plasma 1,750,000,000 1,200,000,000 600,000,000
USDT0 Plasma 6,000,000,000 3,000,000,000 5,000,000,000 2,700,000,000
USDC Sonic 50,000,000 20,000,000 20,000,000 18,000,000

Borrow caps set to 1 (no proven borrow usage)

Asset Chain Current Supply cap Proposed Supply cap Current Borrow cap Proposed Borrow cap
tBTC Arbitrum 50 35 25 1
cbETH Ethereum Core 18,000 9,000 2,400 1
ezETH Ethereum Prime 20,000 2,000 100 1
sUSDe Ethereum Prime 5,000,000 3,000,000 1,000 1

Supply caps set to 1 (deprecation track)

Asset Chain Current Supply cap Proposed Supply cap Current Borrow cap Proposed Borrow cap
ETHx Ethereum Core 40,000 1 -
PT-srUSDe-2APR2026 Ethereum Core 200,000,000 1 -
PT-sUSDE-5FEB2026 Ethereum Core 720,000,000 1 -
PT-USDe-5FEB2026 Ethereum Core 360,000,000 1 -
USDS Ethereum Prime 40,000,000 1 36,000,000 1
PT-sUSDE-9APR2026 Plasma 1,200,000,000 1 -
PT-USDe-9APR2026 Plasma 80,000,000 1 -

Next Steps

We will move forward and implement these updates via the Risk Steward process.

Disclosure

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.

2 Likes
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Supportive of the overall approach. Right-sizing caps after a stress-induced contraction is the correct move, and the methodology here — grouping adjustments by asset role rather than applying uniform haircuts — reflects the kind of risk-differentiated thinking that was missing in the cap architecture the rsETH exploit exposed.

That said, a few observations on what this proposal does well, where it leaves gaps, and what it reveals about the structural limits of manual cap management.

What This Gets Right

The 50-75% headroom target for collateral assets is well-calibrated. It threads the needle between two failure modes: caps set so tight they choke organic recovery (which would extend the confidence crisis), and caps left so loose they recreate the exact concentration vectors the exploit used. The key insight in the methodology is that the headroom is sized to be reversible in a single Risk Steward action. That’s operationally intelligent — it means governance doesn’t need a full AIP to re-expand if capital returns faster than expected. One step out, one step back. Clean.

The stablecoin differentiation is correct. Stable liquidity carries fundamentally different concentration risk than volatile collateral. A single large USDC deposit doesn’t introduce the same oracle/depeg cascading risk as a single large weETH or ezETH deposit. Wider headroom here is the right asymmetric bet: the downside of too-tight stable caps (grinding borrowing to a halt during recovery) is worse than the downside of too-wide ones.

The deprecation track for matured Pendle PTs is overdue good hygiene. Once a PT matures, its collateral value converges to its underlying mechanically. Maintaining active cap parameters for an asset whose economic function has expired is configuration debt. Soft-freezing via supply cap = 1 is the right tool — it preserves existing positions while preventing new surface area. Should have been automated at maturity, but better late than manual.

Where I’d Push Back

1. The ezETH and weETH reductions on Linea are aggressive enough to warrant separate justification. ezETH on Base goes from 5,000 → 500 (90% cut). weETH on Linea goes from 64,000 → 5,000 (92% cut). weETH on Ethereum Core goes from 2,600,000 → 2,200,000 (15% cut). These aren’t the same risk profile receiving different treatment — they’re radically different treatments that the “50-75% headroom” framework doesn’t explain. If weETH on Linea lost >90% of its supply, that tells a story about Linea as a deployment environment, not just about weETH as a collateral asset. That distinction matters for understanding where capital will return and where it won’t.

Similarly, tETH on Ethereum Core going from 10,000 → 1,000 (90% cut) versus tETH on Ethereum Prime going from 60,000 → 45,000 (25% cut) suggests either very different utilization profiles or very different confidence in the two instances. The proposal would benefit from making that explicit rather than leaving it to inference.

2. The borrow-cap-to-1 soft freeze for cbETH on Ethereum Core deserves scrutiny. Setting a borrow cap to 1 based on “no proven borrow usage” makes sense for niche assets, but cbETH is Coinbase’s staked ETH — not a fringe token. If cbETH borrow demand hasn’t materialized, the question is whether that’s because the market doesn’t want it or because the parameters never made it attractive. Soft-freezing borrowing on a major institutional asset during a period of suppressed activity risks cementing temporary disinterest as permanent policy. At minimum, this should carry an explicit review trigger — not just a path back through Risk Steward escalation, but a timeline.

3. The RLUSD reduction from $750M → $100M supply cap (87% cut) with borrow cap from $300M → $27.9M (91% cut) is the single most aggressive move in this proposal. For a Ripple-backed institutional stablecoin that was likely listed with strategic partnership considerations, this isn’t just cap management — it’s a signal. If RLUSD never attracted meaningful deposits, that’s valuable market data about institutional stablecoin demand on Aave. But governance should be explicit about whether this is a parameter adjustment or a de facto deprecation step, because the market will read it as one or the other regardless.

The Structural Question This Proposal Can’t Answer

This is the fourth time in six days that governance has spent time on supply cap parameters. The AaveShield proposal, the Automated Supply Cap Updater, the rsETH incident response, and now this cleanup. Each is individually justified. Together, they reveal a structural problem: manual cap management doesn’t scale across 23 markets, 20 chains, and 100+ reserves.

The methodology here is thoughtful. But it’s also a snapshot — calibrated to post-crisis supply levels on April 24, 2026. If capital returns over the next two weeks (which it will, partially), caps will need re-expansion. If another stress event hits a different asset class, caps will need re-contraction. Each adjustment requires a Risk Steward action, forum post, and community review cycle. That’s weeks of latency for a system where the exploit demonstrated that hours matter.

This proposal is the right short-term response. The Automated Supply Cap Updater, currently in Temp Check, is the right medium-term architecture. The fact that both are needed simultaneously is the strongest possible argument for fast-tracking the latter.

Support. Execute via Risk Steward as proposed. But treat this as the last manual cap recalibration of this scale — build the automation so the next stress cycle is handled by code, not by governance posts.

-– Robby Greenfield | tokedex.org