Aave Vote Approves PAXGy as Collateral, Capping Supply at 480 Tokens per Position
Key Facts
Aave’s governance vote approved the proposal to use PAXGy as borrowing collateral, with 326,000 AAVE in favor, representing 100.00% of votes cast and exceeding the required quorum of 320.00 thousand. The execution arrangement allows USDG borrowing against PAXGy on the existing PAXG Gold position, and PAXG borrowing against the token on the new PAXG Paxos eSpoke position, according to the proposal. This follows a LlamaRisk recommendation published on October 12 to list the asset through two separate tracks, each with different borrowable assets, a collateral factor and a liquidation bonus. LlamaRisk’s assessment published on November 10 said there was no PAXGy reserve on Ethereum when it was prepared, so the listing had not been established as active at that date. The vote result moves the proposal into the execution stage, but does not change the fact that the risk assessment tied support to liquidity conditions on the network.
For the first track, LlamaRisk recommended using PAXGy as collateral to borrow USDG on the Gold Spoke, with a 70% collateral factor and a maximum liquidation bonus of 7.50%. The second track places the token as collateral to borrow PAXG on the Gold Correlated Spoke, with an 85% collateral factor and a 4% liquidation bonus, according to the October 12 recommendation. This design separates borrowing in a stablecoin from borrowing an asset linked to gold, rather than treating them as a single option within one position. The assessment recommended setting a supply cap of 480 PAXGy per proposed collateral position, with a withdrawal cap of 400 PAXG on the Gold Correlated Spoke. These are operational limits in the recommendation, while the November 10 review did not establish the existence of a PAXGy reserve on Ethereum at that time. The move from a governance proposal to actual use therefore depends on meeting the execution and liquidity requirements cited in the assessment.
LlamaRisk tied its support to Paxos Labs providing the liquidity it had committed on Ethereum at listing: $2 million in the PAXGy/PAXG pool on Uniswap, and $1 million in the PAXG/USDC pool. The assessment described this liquidity as a condition for the listing to function, not a separate detail, while its November 10 assessment noted there was no PAXGy reserve on the network at that time. Aave’s change log says the Paxos Global Dollar Hub position on Ethereum launched within Aave V4 on June 25, 2026. Protocol documentation also lists the Global Dollar position and the PAXG Gold position among V4 contracts on the network. The existing position provides context for the proposed USDG borrowing track, while the proposal adds a separate position for borrowing against PAXG. The June launch does not establish that the PAXGy listing was in use on the assessment date.
The token’s risks are linked to how its reserves are deployed: the lending book targets deploying about 80% of treasury assets with four institutional borrowers, with nearly two-thirds of capacity concentrated with the largest borrower, according to LlamaRisk’s assessment. The assessment said these loans are not covered by default insurance, and unrecovered losses could be passed on to all PAXGy holders through a reduction in the exchange rate. Direct redemption is also limited to institutions on the whitelist, making the exit mechanism different for other holders. In its operational description, the assessment said an operator writes the exchange rate roughly once a day based on the gold lending book, targeting deployment of about 80% of assets. This link means the exchange rate is affected by lending and collection performance, as well as the price of gold itself.
Paxos Labs said a holder’s PAXGy token balance does not change, while the amount of PAXG corresponding to each token rises through the exchange rate as reserves are deployed with institutional borrowers. But it warned that exchange-rate growth is not guaranteed, and losses from external strategies or borrower defaults could lead to a downward adjustment. The cash value of a holding remains exposed to fluctuations in physical gold, the company said, so a rise in the amount of gold represented does not necessarily mean an increase in dollar value. PAXGy launched on September 24, 2026, as a PAXG-backed token whose value accrues in units of gold; Paxos Labs said at launch that it was available through OKX and on-chain platforms. With the proposal approved, the liquidity condition cited in LlamaRisk’s assessment remains central to moving ahead with the listing, while the company’s disclosures make clear that potential gold returns come with credit and price volatility risks.