Risk Stewards: USDe Supply Cap Increase on Aave V3 MegaETH / 2026.05.03

Risk
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Summary

LlamaRisk recommends the following parameter changes based on user behavior, on-chain liquidity, and position health observed in the latest review of Aave V3 reserves.

Aave V3 MegaETH:

  • Increase supply cap for USDe from 100,000,000 to 200,000,000.

USDe (Aave V3 MegaETH)

USDe has reached 100.0% supply cap utilization (100,000,000 / 100,000,000) on the Aave V3 MegaETH instance. The reserve refilled to its ceiling within the day following the prior cap raise, indicating sustained demand on this market.

Supply Distribution

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Source: LlamaRisk, May 3, 2026

The dominant usage pattern is a leveraged stable-stable loop: USDe collateral against USDm debt under the stablecoin E-Mode. Health factors among active borrowers cluster between 1.03 and 1.05, with a smaller cohort of passive depositors holding USDe on a spot basis (HF infinite) and a thin tail of more conservatively leveraged positions in the 1.13 to 1.72 range. The tight HF cluster reflects capital-efficient looping where collateral and debt are both USD-pegged stablecoins, so liquidation risk is contained by the correlation between the two legs and by the narrow E-Mode liquidation bonus.

Recommendation

Given full cap utilization on the back of a same-week refill, the structurally low liquidation risk of the correlated stablecoin loop, and the sustained demand observed on the MegaETH instance, we recommend doubling the USDe supply cap from 100,000,000 to 200,000,000. The borrow cap remains unchanged at 40,000,000, in line with the negligible borrow utilization on the reserve.

Specification

Instance Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Aave V3 MegaETH USDe 100,000,000 200,000,000 unchanged (40,000,000) unchanged (40,000,000)

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.

1 Like
Risk Stewards: Supply Cap Increase on Aave V3 MegaETH / 2026.05.09
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This is a perfect example of why we need the Sandbox. MegaETH is seeing 100% cap utilization and high-leverage looping (1.03 HF) within days of launch. That’s great for protocol revenue, but it’s the definition of a high-energy silo. Keep the supply caps growing to meet demand, but keep the firewalls high so that 1.03 cluster never touches the stability of the ‘Commuter’ chains like Arbitrum, OP, Mantle, or Base.

Risk Stewards: Supply Cap Increase on Aave V3 MegaETH / 2026.05.09
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The changes have been executed.

4

Community risk concern before this cap increase:

A structural analysis of the USDe MegaETH
integration identified three gaps worth
examining before the supply cap increases further:

  1. ORACLE CONFIGURATION — The USDT/USD feed
    via stable cap adapter is used to price USDe.
    USDT and USDe have different depeg mechanisms.
    It is not documented whether the stable cap
    adapter accounts for USDe-specific depeg events.
    This warrants explicit verification.

  2. LIQUIDATION AT SCALE — LlamaRisk’s own
    assessment documented ~$6M in seed liquidity
    at the time of listing. The supply cap has since
    reached 400M. The 67:1 ratio between authorized
    supply and available DEX liquidity means
    liquidation is economically constrained above
    ~$6M notional. Has liquidity grown proportionally
    to the cap increases?

  3. DVN CONFIGURATION UNDOCUMENTED — The
    MegaETH-specific OFT deployment has not received
    a chain-specific audit. The governance proposal
    does not document the DVN configuration for the
    Ethereum-MegaETH pathway. The KelpDAO $292M
    exploit was specifically a 1-of-1 DVN default —
    the same default LayerZero uses for 40% of
    protocols. Has the DVN configuration for this
    deployment been verified against a multi-DVN
    standard?

These are verification questions, not
accusations. The community deserves documented
answers before further cap increases.

Full analysis available. Happy to discuss.

5

Update: KelpDAO announced today they are
migrating to Chainlink CCIP following
the April 18 exploit.

LayerZero and KelpDAO dispute whether
1-of-1 DVN was KelpDAO’s choice or
LayerZero’s own default. Either way —
the DVN configuration for USDe MegaETH
remains undocumented.

The DVN verification question from my
prior comment stands.

6

Update on the DVN question: LayerZero
co-founder now states Kelp migrated FROM
MultiDVN TO 1-of-1 — not that 1-of-1
was the default.

Dispute ongoing. Either way — the USDe
MegaETH DVN configuration is still not
publicly documented.

The verification question stands regardless
of how KelpDAO’s config was chosen.