Aave will freeze $279M in osETH, unless StakeWise wins this vote
Aave governance faces a decision on freezing $279 million in osETH collateral after StakeWise founder Dmitri requested a separate vote on the proposed freeze.
On Nov. 11, StakeWise founder Dmitri asked Aave governance to vote separately on freezing osETH, challenging a plan to close it to new lending exposure on Aave's V3 Core market. His forum response contested a broader collateral overhaul proposed by risk adviser LlamaRisk on Nov. 10.
The LlamaRisk plan would stop new osETH supply and borrowing against it while leaving existing positions open. The adviser argues that V3's shared lending pool leaves Wrapped Ethereum (WETH) and stablecoin suppliers exposed to collateral risks at a pooled borrowing rate, while borrowers collect additional spread from looping strategies.
StakeWise had experienced no hacks or validator slashings since January 2021 and described immutable, native leverage contracts that return borrowed ETH directly from validators.
Risk assessment
LlamaRisk's Nov. 9 analysis put osETH collateral at $279.4 million, backing an estimated $256.6 million of WETH debt. The adviser estimated leverage at around 14 times in Aave's ETH-correlated efficiency mode (E-Mode), where osETH had a 93% loan-to-value limit.
The 10 largest positions accounted for 66% of the attributed debt, making the treatment of existing positions central to the proposed transition. Independent daily reserve snapshots show 122,900 osETH deposited on Nov. 9 and 122,400 on Nov. 11.
Migration plan
The initial freeze would set osETH's E-Mode borrowing limit to zero, while existing borrowers could repay or migrate, with withdrawals subject to their position constraints. The proposal identifies wstETH, weETH, cbETH and WETH as replacement collateral already available within the same E-Mode.
LlamaRisk's static analysis found that cutting liquidation thresholds by 2% to 5% would make most collateral in the highly leveraged rsETH and osETH loops eligible for liquidation. Instead, the adviser proposes issuer engagement and natural unwinding, with monthly progress reports.
Future considerations
If migration fails to reduce exposure, a WETH base-borrow-rate increase would remain a last resort: up to 1%, in 0.5% steps no more than monthly. Proposed rebates would offset the increase for WETH borrowers holding neither rsETH nor osETH.
Aave V4's lending architecture offers a different way to allocate risk through hubs and spokes, with a User Risk Premium charging borrowers according to the collateral needed to cover their debt. An orderly transition for borrowers depends on both a usable route and acceptable borrowing terms.
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