The risk management team LlamaRisk has published a proposal to restructure the Aave V3 Ethereum Core market. The initiative involves restricting the use of a number of crypto assets as collateral for lending in order to concentrate liquidity on vetted assets and reduce the risks of the DeFi protocol.

As of November 9, 2026, the changes cover $1.33 billion in collateral assets securing about $1.03 billion in debt.

The authors explained that the current Aave V3 Core model pools liquidity across different assets. At the same time, some collateral tokens depend on restaking, leverage, cross-chain bridges, and third-party infrastructure solutions.

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This creates additional risks for liquidity providers, who do not always receive appropriate compensation.

Which assets fell under the restrictions?

The largest positions covered by the proposal are rsETH, osETH, LBTC, tBTC, and rETH. Additionally, the initiative covers eBTC, BTC.b, tETH, LDO, mUSD, and PT-srUSDe-22OCT2026.

Incrypted infographic.

LlamaRisk proposes freezing the relevant reserves, prohibiting new deposits and borrowings against these assets, and setting the loan-to-value (LTV) ratio at 0%.

At the same time, existing positions will remain open. Users will be able to repay debts, withdraw assets, or transfer collateral to other categories.

For certain frozen reserves with debt exceeding $20,000, it is also proposed to increase the reserve factor to 99%.

The largest concentration of risks falls on rsETH and osETH, which account for about $862 million in WETH debt. According to LlamaRisk's assessment, the respective strategies use leverage of approximately 12 to 14 times.

Recall that on April 18, 2026, the KelpDAO restaking protocol suffered an attack with losses of about $293 million. The attackers exploited a vulnerability in the cross-chain bridge and created unbacked rsETH tokens, some of which were used as collateral in Aave, which triggered a liquidity crisis and an outflow of capital from the protocol.

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To cover an approximately $250 million collateral shortfall, DeFi market participants formed the DeFi United coalition, which developed a plan to restore the value of rsETH. KelpDAO later announced the completion of a five-week token recovery process.

What will change for Aave users?

The proposed restructuring involves the gradual migration of more complex collateral assets to Aave V4, where risks can be assessed individually through dedicated lending rate premiums.

Recall that Aave Labs announced the launch of the fourth version of the protocol (V4) on the Ethereum mainnet at the end of March this year.

Instead, V3 Core should focus on liquid assets, in particular WETH, wstETH, weETH, cbETH, WBTC, cbBTC, USDC, USDT, GHO and DAI.

If borrowers do not reduce their positions voluntarily, LlamaRisk allows for a gradual lowering of liquidation thresholds for LBTC, tBTC, and rETH. For strategies with rsETH and osETH, a last-resort measure could be raising WETH borrowing rates with compensation for borrowers who do not use these assets.

According to the authors' calculations, the corresponding debt positions currently provide the Aave DAO with about $3.7 million in annual income. The figure does not take into account the potential reallocation of capital.

The initiative has already drawn objections from certain projects.

StakeWise founder Dmytro Tsumak asked to put the issue of freezing osETH to a separate vote, citing the protocol's security history.

Rocket Pool representative Darren Langley also called for rETH to be excluded from the proposal:

"We support the goal of focusing Core on proven, liquid collateral and reducing risks. We believe that rETH belongs to the category of proven assets, and we ask that it be excluded from this proposal and evaluated separately in accordance with Aave's risk management framework."

The proposal is at the ARFC discussion stage and does not yet mean the introduction of new restrictions. If approved, the initial changes will be put forward to the next stage of Aave governance — the AIP — after which the team plans to report monthly on the reduction of the relevant positions.

How did the community react to LlamaRisk's proposal?

Aave founder Stani Kulechov supported the discussion of the initiative, noting that its goal is to focus the protocol's largest market on liquid and proven collateral, and potentially move riskier assets to isolated Aave V4 markets.

LlamaRisk proposes repositioning Aave V3 Core, Aave’s largest market, to focus on liquid, blue-chip collateral.

The proposal would remove several categories of exposure:

1. Restaking assets

2. Leveraged wrapping strategies

3. Issuers whose operational and security resources fall short of Aave’s risk standards

4. Low-demand reserves that no longer justify ongoing maintenance

This means potentially moving $1.52B in collateral backing $1.17B in debt out of V3 Core in favour of blue-chip collateral.

As the risk landscape evolves and Aave V4 grows, the goal is to sharpen V3 Core’s risk profile and raise the bar for collateral eligibility.

Some affected assets could transition to isolated Aave V4 markets, where more granular risk controls allow for better risk-reward alignment.

The proposal comes from LlamaRisk, an Aave Protocol Risk Manager, and remains subject to governance discussions and engagement with asset issuers.

Aave will continue applying continuous risk assessment for all assets across all deployments.

— Stani (@StaniKulechov) November 10, 2026

The analyst under the pseudonym anze also positively assessed this approach, recalling the consequences of the rsETH incident, when ETH lenders faced problems withdrawing funds and stablecoin borrowing rates rose sharply. In his opinion, segregating risks will allow preserving access to more complex lending strategies without additional burden on the main market.

"Keeping V3 Core simple and moving exotic assets to V4 seems like the right decision. Lenders will get a safer pool, and users of leveraged strategies will be able to continue working on their markets in V4," anze wrote.

A similar position was expressed by a user under the pseudonym Ash, who criticized the shared liquidity pool model of Aave V3 Core. In his opinion, the presence of a large number of liquid restaking tokens does not mean proper diversification, since these assets may have interconnected risks.

He believes that isolating such positions in V4 will allow assessing the risks of each collateral category separately and reduce the likelihood of problems spreading between protocol segments.

“Isolation is not a downgrade in the status of these assets. It is a recognition that one huge common pool creates conditions for the spread of risks,” Ash emphasized.

Previously we wrote that Aave proposed to decommission 75 asset reserves and six networks.