LlamaRisk proposal would reposition Aave Core and target $1.33 billion in collateral
Key Facts
LlamaRisk has submitted a proposal to reposition the Aave V3 Core market around established, liquid collateral, targeting assets with $1.33 billion in collateral value. The proposal, published on Aave’s governance forum, calls for allocating a wider range of asset categories to Aave V4. Key assets include rsETH, osETH, LBTC, tBTC and rETH, alongside less-exposed reserves. Debt backed by this collateral stood at $1.03 billion on November 9, 2026. LlamaRisk described its aim as making V3 Core a "market for established, liquid collateral."
The proposed initial step is to freeze each covered reserve, halting new supplies and reducing the loan-to-value ratio to zero. LlamaRisk said the measure would leave existing positions unchanged and unaffected in its first phase. The proposal therefore focuses on limiting new deposits and borrowing against the targeted assets, while allowing existing exposures to be addressed gradually. It noted that rsETH and tBTC are already frozen on Core. The forum proposal does not present the step as an immediate liquidation of positions or a regulatory measure.
Collateral and debt levels vary across the covered assets, with rsETH and osETH accounting for a large share. Core held about $661.8 million in rsETH collateral on November 9, against $605.7 million in WETH debt. osETH collateral stood at about $279.4 million, against $256.6 million in WETH debt. Together, the two assets back $862 million in WETH debt, mostly through leveraged looping positions in Ethereum-related E-Mode categories. The proposal said leverage in these positions ranges from 12 to 14 times.
LBTC collateral on Core stood at about $177.4 million against $72.1 million in debt on November 9. USDT and USDC account for about 97% of the debt backed by this asset. For tBTC, the proposal reported $117.4 million in collateral against $52.9 million in debt spread across 309 borrowing positions. According to the proposal, tBTC has been frozen on Core since October 31, 2026. It also says rsETH supply in the market has fallen 45% since it was frozen in April, from 525.8 thousand to 290.7 thousand rsETH in the November 9 assessment.
The plan calls for working with asset issuers and the largest borrowers on an orderly transition, then considering additional controls if exposure does not fall. These controls include raising the reserve factor to 99% for frozen borrowable reserves that still have debt exceeding $20,000. The proposal described higher borrowing costs as a last step if transition measures fail to reduce positions. It then proposes increasing the WETH borrowing rate by up to 100 basis points, in 50-basis-point increments no more than once a month. The plan says LBTC will continue to be available on Aave through a dedicated module in the Ethereum Core hub under V4.
The proposal follows an earlier round to reduce low-adoption assets, covering 71 reserves across 11 markets, as well as the shutdown of 6 entire markets that had about $98 million in supply. Aave governance has also adopted an asset risk framework for V3, V4 and Aave Horizon markets, setting standards for handling assets. V4 is designed around a liquidity hub and connected modules that manage borrowing under isolated risk parameters, with the ability to price borrowing according to collateral type. If the proposal is approved, the initial measures in its specifications will be put to an onchain vote. LlamaRisk said it will work with issuers and major borrowers and publish monthly reports on progress in reducing positions.