LlamaRisk Proposes Phasing Out Roughly $1.33B of Collateral from Aave V3 Core

November 11 — According to The Defiant, Aave risk management firm LlamaRisk has put forward a governance proposal recommending the gradual phase-out of roughly $1.33 billion in high-risk collateral from Aave V3 Core, shifting the Ethereum lending market toward established, highly liquid assets while giving existing borrowers time to exit. As of November 9, the debt backed by these assets slated for removal stood at $1.03 billion. The proposal is still under discussion and has not been approved.

LlamaRisk argues that Core's pooled lending rates leave depositors bearing the added risk of complex collateral without commensurate compensation. The assets proposed for exclusion include restaking tokens, leveraged wrapper assets, derivative strategies and custom cross-chain bridges, as well as issuers with insufficient resources and reserves with limited demand. Among the affected collateral, rsETH accounts for $661.8 million, osETH for $279.4 million, LBTC for $177.4 million, tBTC for $117.4 million and rETH for $81.8 million. The initial measures would freeze the affected reserves and set their loan-to-value ratios to zero in order to halt new supply and borrowing, but existing loans would not be liquidated immediately.