Aave E-Mode Leverage, Loan Concentration, and Depeg Risk

Summary

The report examines Aave V3 Core’s e-mode lending book, where borrowers use correlated assets as collateral and borrow related assets at preferential loan-to-value limits. It explains how looping can amplify exposure and identifies two main stress paths: borrowing costs outgrowing collateral yield, or collateral depegging from the borrowed asset. The analysis uses an Ethereum on-chain snapshot and applies filters for minimum debt, health factor, and positive equity in selected metrics.

The reported aggregates show that e-mode loans account for a majority of the filtered debt and carry higher leverage and lower health factors than vanilla loans. ETH-linked collateral dominates the book. The report also describes collateral-specific depeg haircuts and an implied-loop estimate based on concentrated collateral positions. These are high-level measures, not liquidation simulations: they do not model liquidation order, partial liquidations, later bad debt, repricing, or execution frictions. Results reflect one snapshot and depend on the stated cohort filters; the source excerpt omits much of the detailed tables and shock results.

Key ideas

• E-mode offers higher borrowing capacity for correlated collateral and liabilities, but concentrated leverage creates depeg sensitivity.
• Aave’s filtered e-mode cohort is more highly levered and has lower health factors than its vanilla cohort.
• ETH-linked assets make up a large share of enabled collateral in the reported book.
• The implied-loop estimate applies only to highly concentrated collateral positions and is a heuristic.
• Snapshot depeg haircuts do not simulate liquidation mechanics or subsequent bad debt.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.