LlamaRisk Proposes $1.33B Aave V3 Collateral Wind-Down

Aave risk manager LlamaRisk has proposed winding down about $1.33 billion of collateral in Aave V3 Core, according to a governance proposal dated Nov. 9, 2026.

The risk manager puts debt backed by those reserves at $1.03 billion. The plan would steer the Ethereum lending market toward established, liquid assets while giving borrowers time to exit. It remains a discussion-stage proposal, not an approved market change.

Initial measures need approval before LlamaRisk submits them through a subsequent onchain governance proposal. LlamaRisk says pooled borrowing rates expose liquidity suppliers to complex collateral without compensating them for the added risk.

The proposed exclusions span restaking, leveraged wrappers, derivatives-backed strategies and custom bridges. They also target issuers judged insufficiently resourced and reserves with limited demand.

What does this change for borrowers and suppliers?

The first phase would freeze affected reserves and set their loan-to-value limits to zero. Zero would also apply in efficiency modes, which permit higher borrowing against correlated assets. New supply and new borrowing would stop. Existing loans would not face immediate liquidation. Holders could still repay, withdraw or migrate.

rsETH and tBTC are already frozen, according to LlamaRisk. The plan would add wstETH, weETH and cbETH to rsETH’s efficiency-mode category. Borrowers could swap collateral without first repaying their WETH debt in full.

The five largest affected reserves account for most of the collateral targeted. Data published on governance.aave.com and supplied by LlamaRisk, dated Nov. 9, 2026, shows:

• rsETH: $661.8 million in collateral, with $605.7 million of debt backed.
• osETH: $279.4 million in collateral, with $256.6 million of debt backed.
• LBTC: $177.4 million in collateral, with $72.1 million of debt backed.
• tBTC: $117.4 million in collateral, with $52.9 million of debt backed.
• rETH: $81.8 million in collateral, with $35.4 million of debt backed.

The reported debt is allocated proportionally to each borrower’s collateral mix. Smaller reserves in scope are eBTC, BTC.b, tETH, PT-srUSDe-22OCT2026 and LDO. The plan also covers mUSD, which is borrowable but not used as collateral.

Separately, the proposal lists WETH, wstETH, weETH, cbETH, WBTC and cbBTC, along with USDe, sUSDe and syrupUSDT, among reserves it would retain. LlamaRisk would work with issuers and large borrowers. It says no further measures would follow while an asset’s exposure declines. The proposal extends an earlier low-adoption wind-down into larger Core positions.

If migration stalls

Only if migration stalls would LlamaRisk begin lowering liquidation thresholds for LBTC, tBTC and rETH. The risk manager estimates leverage at 12 to 14 times in rsETH and osETH borrowing loops. Higher WETH borrowing rates would be a last resort, paired with rebates for borrowers holding neither asset.

LlamaRisk warns that cutting liquidation thresholds by two to five percentage points could make most collateral in those loops liquidatable at once. That warning explains the sequencing: freezes and migration come first, while tighter liquidation or rate controls remain conditional.

Suppliers would also receive less interest income on CRV, tBTC, rETH, crvUSD, FBTC, UNI and mUSD. Their reserve factors—the share of borrower interest directed to the DAO—would rise to 99%. Borrowing rates would not increase initially.

Where borrowing can migrate

Aave V4 would provide another destination. LlamaRisk expects LBTC to continue through a dedicated borrowing module, or spoke, on V4’s Ethereum Core Hub. Within V4, separate borrowing markets can draw on shared liquidity. Its documentation describes local risk controls and collateral-dependent interest premiums.

What happens next

After approval, LlamaRisk plans to submit the initial changes as an onchain proposal. It would report on the wind-down monthly. LlamaRisk would announce any follow-up steps on the forum beforehand.

The next test is governance approval, since the plan cannot alter Aave V3 Core before an onchain proposal. Monthly reporting will show whether exposure falls as borrowers migrate. If migration stalls, the stricter fallback controls become relevant.