LlamaRisk, a risk adviser that gets part of its funding from the Aave DAO (decentralized autonomous organization), proposed on Nov. 10 that Aave freeze three tokens on Aave V3 Core, one of its Ethereum lending markets: StakeWise’s staked ether token osETH, Lombard’s yield-bearing bitcoin token LBTC and Rocket Pool’s liquid staking token rETH, along with six small reserves. The goal, LlamaRisk wrote, is to keep Core for established, liquid collateral and to move riskier assets to Aave V4.
The proposal names five assets, but two are already frozen on Core: rsETH, Kelp DAO’s restaked ether token, since April, and tBTC, Threshold Network’s bitcoin token, since Oct. 31, after Threshold paused minting and redemptions. The three largest new freezes cover $538.6 million of collateral backing $364.1 million of debt, by Unchained’s sum of LlamaRisk’s Nov. 9 figures. Across everything in scope, LlamaRisk counted $1.33 billion of collateral backing $1.03 billion of debt. LlamaRisk put the DAO’s current revenue from the debt in scope at about $3.7 million a year.
Get Unchained’s crypto news in your inbox with the free Unchained Daily newsletter.
What a Freeze Does
A freeze blocks new deposits and new borrowing against an asset and sets its loan-to-value (LTV) ratio, the share of a deposit’s value a user can borrow, to zero. Speaking about Aave’s Oct. 29 emergency freeze, LlamaRisk CEO Adam Sadowski said on Unchained’s Uneasy Money, in an episode recorded Nov. 4, that a freeze works as “a one-way valve where users can always exit, but no new exposure can come in.” The new proposal says existing positions stay “untouched and unaffected.”
Most of the new exposure sits in osETH: $279.4 million of collateral backing $256.6 million of wrapped ether (WETH) loans, at about 14 times leverage.
The plan raises the reserve factor, the cut of borrowers’ interest that goes to the DAO instead of to lenders, to 99% on seven borrowable frozen reserves that still carry more than $20,000 of debt. LlamaRisk said borrow rates would not change.
If exposure does not shrink, the proposal approves stepwise cuts to liquidation thresholds, the collateral level at which a loan can be liquidated, and, only as a final step, a higher WETH borrow rate aimed at the rsETH and osETH leveraged loops, positions that borrow ether against staked ether over and over. “We will not make abrupt parameter changes that would liquidate significant positions,” LlamaRisk wrote in the proposal.
StakeWise Asks for Its Own Vote
On Nov. 11, a poster signing as StakeWise’s founder asked LlamaRisk and the DAO to “move the proposed osETH freeze to a separate vote.”
The proposal is an Aave Request for Final Comments (ARFC), still in discussion on Aave’s governance forum. No vote on it had been posted to the Aave DAO’s space on Snapshot, the offchain voting platform, as of Nov. 11.
Related Listen: How the $6B Binance Hack Ran Through Aave: Uneasy Money
