Aave risk manager LlamaRisk has proposed winding down about $1.33 billion in collateral in Aave V3 Core. The move would shift the Ethereum lending market toward established, liquid assets while allowing existing borrowers time to exit.
The governance proposal estimates that the debt backed by these assets totaled $1.03 billion as of Nov. 9. The plan is still at the discussion stage, not an approved market change; its initial measures would require approval, followed by an onchain governance proposal.
LlamaRisk says Core's pooled borrowing rates expose suppliers to complex collateral without compensating them for the added risks. The proposed exclusions cover restaking, leveraged wrappers, derivatives-backed strategies and custom bridges, as well as issuers considered insufficiently resourced and reserves with limited demand.
Most of the targeted collateral is in rsETH, osETH, LBTC, tBTC and rETH. Smaller reserves within the proposal's scope include eBTC, BTC.b, tETH, PT-srUSDe-22OCT2026 and LDO. The plan also includes mUSD, which can be borrowed but is not used as collateral.
Affected Core Collateral and the Debt It Backs
| Subject | Metric | Value |
|---|---|---|
| rsETH | Collateral | $661.8M |
| rsETH | Debt backed | $605.7M |
| osETH | Collateral | $279.4M |
| osETH | Debt backed | $256.6M |
| LBTC | Collateral | $177.4M |
| LBTC | Debt backed | $72.1M |
| tBTC | Collateral | $117.4M |
| tBTC | Debt backed | $52.9M |
| rETH | Collateral | $81.8M |
| rETH | Debt backed | $35.4M |
Source: data_source (governance.aave.com). Period: 9 November 2026. Source: LlamaRisk, Nov. 9, 2026. The five largest affected collateral reserves, not the full scope. Debt is allocated proportionally to each borrower's collateral mix. (source)
The proposal builds on an earlier wind-down of low-adoption assets, extending it to larger positions in Core. Collateral that would remain includes WETH, wstETH, weETH, cbETH, WBTC and cbBTC, along with USDe, sUSDe and syrupUSDT.
Borrowers Would Get Time to Exit
The initial measures would freeze the affected reserves and set their loan-to-value limits to zero, including in efficiency modes that permit greater borrowing against correlated assets. This would halt new supply and borrowing against the collateral, but would not immediately liquidate existing loans. Holders could still repay, withdraw or migrate.
LlamaRisk says rsETH and tBTC are already frozen. The plan would place wstETH, weETH and cbETH in rsETH's efficiency-mode category, allowing borrowers to swap collateral without first fully repaying their WETH debt. LlamaRisk would work with issuers and large borrowers, and would take no further measures while an asset's exposure declines.
Suppliers would also earn less interest income on CRV, tBTC, rETH, crvUSD, FBTC, UNI and mUSD. Their reserve factors—the portion of borrower interest allocated to the DAO—would increase to 99%, with no initial rise in borrowing rates.
If migration stalls, later controls could gradually reduce liquidation thresholds for LBTC, tBTC and rETH. For rsETH and osETH borrowing loops, which LlamaRisk estimates use 12 to 14 times leverage, increasing WETH borrowing rates would be a last resort, alongside rebates for borrowers who hold neither asset. LlamaRisk cautions that a two-to-five-percentage-point reduction in liquidation thresholds could make most of the collateral in those loops liquidatable at once.
V4 would offer another destination: LlamaRisk expects LBTC to continue through a dedicated borrowing module, or spoke, on V4's Ethereum Core Hub. As The Defiant previously reported, V4 can support separate borrowing markets using shared liquidity. Its documentation describes local risk controls and interest premiums that depend on collateral.
After approval, LlamaRisk plans to submit the initial changes in an onchain proposal and report monthly on the wind-down. Any subsequent steps would be announced on the forum in advance.
Source: thedefiant.io. Adapted by NBTC.
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