This is an archive of our post on Aave governance forum. Read the full thread here.

Summary

LlamaRisk supports the proposed changes. The decision to limit exposure to sUSD is rational; therefore, the changes to Stablecoins E-Mode are well justified. Nonetheless, considering that this E-Mode is planned to be deprecated, it may be beneficial to limit new E-Mode exposure completely and set the E-Mode’s LTV to 0 immediately. This would also achieve the objective of fully limiting originations of new sUSDe-backed loans but would still let current positions be topped up subject to LT.

sUSD Stability

Even though sUSD DEX liquidity has recovered from the lows observed in December 2024, the secondary market price remains 2% below the peg. This means the market has fundamentally shifted, with the liquidity concentration being out of bounds. The price movements have also become more volatile, with the trend failing to show signs of recovery. While the overall liquidity may be sufficient to handle unexpected liquidations, the observed trend prompts the enactment of safety measures on Aave’s Optimism market targeted to limit USD exposure.

Stablecoins E-Mode

Out of 9.3M sUSD (~$9.1M) currently supplied on Optimism’s market, $5.14M of borrows are made against the sUSD collateral. Most of these positions are opened using the Stablecoins E-Mode and are highly over-collateralized; therefore, even with the proposed LT reduction, additional borrowing of up to $2.6M would still be possible. As outlined by @ChaosLabs, forced liquidations would immediately affect only $2.6k of sUSD collateral. Nonetheless, lowered LT is expected to move the users to start unwinding the positions gradually.

Given that the intention is to deprecate the Stablecoins E-Mode and potentially replace it with new ones, we consider it beneficial to set the LTV of that E-Mode to 0 starting from this proposal. This would limit new borrows that would be done using this E-Mode but would leave the flexibility for current borrow positions, letting users top up the collateral if needed.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.