Aave’s decentralized governance is set to decide whether to isolate the protocol’s exposure to the staking token osETH in a dedicated vote, after StakeWise founder Dmitri submitted a request on Nov 11. The move comes amid a broader risk‑mitigation plan proposed by risk adviser LlamaRisk, which aims to halt new supply and borrowing of osETH on Aave’s V3 Core market while keeping existing positions open.

ETH / USD
Source: CoinGecko. Prices are indicative.

StakeWise’s Request and LlamaRisk’s Analysis

According to CryptoSlate, Dmitri’s forum post challenged LlamaRisk’s broader collateral overhaul introduced on Nov 10. He argued that StakeWise has not suffered any hacks or validator slashings since January 2021 and highlighted the protocol’s immutable leverage contracts that return borrowed ETH directly from validators. LlamaRisk’s analysis, dated Nov 9, estimates the osETH collateral at $279.4 million, supporting roughly $256.6 million of WETH debt, and notes an approximate 14‑fold leverage in Aave’s ETH‑correlated efficiency mode (E‑Mode) where osETH enjoys a 93 % loan‑to‑value limit.

Proposed Mechanics of the Freeze

The separate vote would allow governance to evaluate the osETH risk against Aave’s lending‑risk criteria. If passed, the initial freeze would set the E‑Mode borrowing limit for osETH to zero, compelling existing borrowers to either repay or migrate their positions. The proposal outlines a pathway for collateral swaps to wstETH, weETH, cbETH or WETH—already available within the same E‑Mode—without requiring full repayment of the underlying WETH debt. Daily reserve snapshots show a slight decline in osETH deposits from 122,900 on Nov 9 to 122,400 on Nov 11, indicating limited recent inflows.

Potential Risk Mitigation Measures

LlamaRisk warns that cutting liquidation thresholds by 2‑5 % could trigger liquidations for many highly leveraged rsETH and osETH loops. Because osETH shares its category with other ETH collateral, a uniform threshold adjustment would affect a broader set of assets. The adviser therefore recommends issuer engagement and a natural unwinding process, with monthly progress reports. Should exposure not decline, Aave could raise the base‑borrow rate for WETH up to 1 % in 0.5 % increments, offset by rebates for borrowers not holding rsETH or osETH. Aave’s upcoming V4 architecture, which separates liquidity hubs and spokes with localized risk settings, may also provide a longer‑term solution, though the current proposal does not specify a dedicated osETH spoke or premium.

What to Watch Next

The outcome of the separate vote will indicate whether Aave’s governance can isolate and manage the osETH exposure without broader collateral reforms. Observers should monitor any subsequent proposals that adjust liquidation thresholds, base‑borrow rates, or that leverage the V4 risk‑allocation model. Additionally, StakeWise’s response to the vote’s result and any reported migration activity will be key signals of how the protocol’s staking‑token risk profile evolves.