Aave Governance Proposes Significant Lending Cap Reductions
A new proposal on the Aave governance forum, submitted by risk service provider LlamaRisk, outlines substantial reductions to borrowing parameters across both V3 and V4 deployments. The plan calls for lowering the borrowing caps for 27 reserves in Aave V3 and the draw caps for 6 credit lines in Aave V4. The new caps would be set at approximately 1.02 times the pre-incident borrowed amounts, a conservative measure aligned with current market activity.
Adjustment Details and Market Context
The proposed changes would remove roughly $3.8 billion in unused lending capacity—about $3.7 billion from V3 and $130 million from V4. Key asset adjustments include:
- WETH borrow cap in V3 Core reduced from 2.4 million to 1.79 million tokens
- USDT borrow cap lowered to $2.56 billion
- USDC borrow cap adjusted to $2.27 billion
This proposal follows a security incident on October 29, after which Aave proactively froze the affected V3 and V4 reserves. The proposer highlighted that potential attackers still hold significant amounts of ETH, stablecoins, and governance tokens, which could be deployed to rapidly establish large positions upon a full market unfreezing, posing a liquidity risk to the protocol.
Implementation Path and Scope
The adjustments are intended to be executed via Aave's Risk Steward governance process before a phased unfreezing of the pools. It's noted that GHO reserves are excluded from this round of changes, with the focus being on assets perceived to have higher concentration risks.
This move demonstrates a proactive risk management approach within DeFi protocols—calibrating parameters to balance service resumption with risk control, aiming to safeguard the long-term security of the protocol and user funds.