Aave Risk Adviser Proposes Freezing $1.33 Billion of Core Collateral
StakeWise's founder asked for a separate vote on osETH, where $279.4 million of collateral backs loans at about 14 times leverage.
Aave's risk adviser LlamaRisk wants to freeze nine more tokens on Aave V3 Core, the lending app's main Ethereum market, in a plan covering $1.33 billion of collateral backing $1.03 billion of loans as of Nov. 9. On Wednesday, one issuer asked for its own vote.
LlamaRisk, which is funded in part by the Aave DAO, posted the proposal on Aave's governance forum on Nov. 10.
How a freeze works
On Aave, users deposit tokens and borrow against them. A freeze blocks new deposits and new borrowing against a token and sets its loan-to-value ratio (the share of a deposit's value a user can borrow) to zero. Existing loans stay open and can be repaid or moved at any time. On frozen reserves still carrying more than $20,000 of debt, the DAO's cut of interest would rise to 99%. LlamaRisk said borrow rates wouldn't change.
Most of the money sits in ether loops
Two of the five big tokens are already frozen: Kelp DAO's rsETH since April and Threshold's tBTC since Oct. 31. The new freezes would hit StakeWise's osETH ($279.4 million of collateral backing $256.6 million of debt), Lombard's LBTC ($177.4 million and $72.1 million) and Rocket Pool's rETH ($81.8 million and $35.4 million).
The osETH loans run at about 14 times leverage: deposit staked ether, borrow ether, stake it, repeat.
The debt in scope earns the DAO about $3.7 million a year, LlamaRisk said. If exposure doesn't shrink, the plan allows small, monthly cuts to liquidation thresholds and, as a last step, a WETH borrow-rate rise of up to 1 percentage point. "We will not make abrupt parameter changes that would liquidate significant positions," LlamaRisk wrote.
StakeWise asks for a separate vote
A post signed by StakeWise founder Dmitri asked LlamaRisk and the DAO on Nov. 11 to "move the proposed osETH freeze to a separate vote." Lombard and Rocket Pool hadn't posted in the thread by Wednesday evening. No vote had been posted to Snapshot as of Nov. 11, Unchained reported.
In our opinion: the number to watch is $862 million, the WETH debt tied to the rsETH and osETH loops, because that's where any rate change would land. Aave is asking those borrowers to leave, politely and on their own schedule. The first real test is whether the DAO splits osETH out, as StakeWise asked, before anything reaches a vote.
Sources: Aave governance forum: LlamaRisk ARFC and StakeWise reply · Unchained
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