LT/LTV Reductions on Aave V2 Stablecoins
01Summary
Reduce Liquidation Threshold (LT) and Loan-to-Value (LTV) parameters for major stablecoins (USDC and USDC.e) on Aave V2 across Ethereum, Polygon, and Avalanche to align with V3 parameters and reduce protocol risk. The proposal adopts conservative recommendations to minimize liquidations of users looping stablecoins with themselves.
- Type
- parameter change
Key changes
- USDC on Ethereum: Reduce LTV from 80% to 75%; LT remains unchanged at 87.50% to avoid liquidations of looping positions(high)
- USDC.e on Polygon: Reduce LTV from 80% to 75% and LT from 85% to 84.50%, expected to cause ~10K in liquidations across 45 accounts(high)
- USDC.e on Avalanche: Maintain LTV at 75% and reduce LT from 80% to 78%, expected to cause ~10.3K in liquidations across 11 accounts(high)
- Overall strategy aligns V2 stablecoin parameters closer to V3 targets of 75% LTV and 78% LT(medium)
Notable concerns
- Liquidations will be triggered for users looping stablecoins with themselves, particularly on Polygon (235 accounts in aggressive scenario) and Ethereum (10 accounts in aggressive scenario)
- Conservative approach chosen over aggressive options to limit liquidations, but still results in expected liquidations of ~10-103K USD depending on chain
- Two large USDC looping positions on Ethereum prevent more aggressive LT reduction without significant liquidation impact
Generated by Kvorum
02Description
Summary
A proposal to reduce LT and LTV for major stablecoins on Aave V2
Motivation
Following our ongoing reduction of stablecoin LTs and LTVs on Aave V3 markets, we propose reducing LTs and LTVs on V2 to limit risks posed by the current parameters and align them closer to V3’s parameters.
It is important to note that in some cases, it is difficult to reduce LTs because of users looping assets with themselves. For example, on Ethereum, there are 58 wallets that are both supplying and borrowing more than 10,000 USDC. This leads us to recommend two different options on which the community can decide: a more aggressive LT reduction, which will result in more liquidations but help reduce LT more quickly and a conservative LT reduction, which will prioritize limiting liquidations. For all options, we recommend decreasing LTV to the target of 75%.
LT/LTV Reduction
The overall goal of our stablecoin LT/LTV reduction is the same as on V3, ultimately achieving the following parameters:
| Final LTV | Final LT |
|---|---|
| 75.00% | 78.00% |
USDC (Ethereum)
Currently, reducing LT would require inducing a significant number of liquidations; a reduction of just 0.50% would create $137K in new liquidations, and a 2% reduction would create $200K in new liquidations. This is largely caused by two users (1, 2), both of whom are looping USDC with itself. Thus, our conservative proposal is not adjusting LT, while the aggressive calls for reducing it by 0.50%.
| Asset | Value Liquidated ($) | Accounts Liquidated |
|---|---|---|
| Conservative | - | - |
| Aggressive | 137.3K | 10 |
USDC.e (Polygon)
Similar to USDC on Ethereum, it is difficult to reduce the LT without inducing large liquidations, thus the conservative proposal calls for a reduction to 84.50%.
The three largest potential liquidations (1,2,3), representing the majority of new value eligible for liquidation, are all wallets that are looping USDC.e with itself.
The more aggressive approach would reduce LT to 83% and potentially induce $103K worth of liquidations.
| Asset | Value Liquidated ($) | Accounts Liquidated |
|---|---|---|
| Conservative | 10K | 45 |
| Aggressive | 103K | 235 |
USDC.e (Avalanche)
Our approach involves reducing USDC.e’s LT to 78%, inducing $10,300 worth of liquidations across 11 new wallets.
Again, the largest liquidation would be a user who is looping USDC.e. This would bring the market in line with our final parameters, and thus there is no need for an aggressive proposal.
Specification
LT/LTV Reduction
As per the community Snaphsot vote, this proposal adopts the conservative recommendations:
| Chain | Asset | Current LTV | Rec. LTV | Current LT | Rec LT |
|---|---|---|---|---|---|
| Ethereum | USDC | 80.00% | 75.00% | 87.50% | No Change |
| Polygon | USDC.e | 80.00% | 75.00% | 85.00% | 84.50% |
| Avalanche | USDC.e | 75.00% | No Change | 80.00% | 78% |
References
- Implementation: AaveV2Ethereum, AaveV2Polygon, AaveV2Avalanche
- Tests: AaveV2Ethereum, AaveV2Polygon, AaveV2Avalanche
- Snapshot
- Discussion
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
The proposal description details specific LTV/LT parameter changes for three markets across three chains (Ethereum, Polygon, Avalanche), referencing separate payload contracts for each network as is standard for Aave cross-chain governance. However, the only decoded on-chain action provided is a single generic execute() fallback call on an Ethereum contract with no decoded arguments. This is consistent with Aave's typical governance pattern, where the on-chain proposal action simply invokes a payload contract's execute() function, and the actual parameter-setting logic (setLtv, setLiquidationThreshold, etc.) is executed internally within that call rather than being exposed as separate top-level decoded actions. Because the calldata is opaque at this level of decoding, it is not possible to directly verify the specific percentage values (75% LTV, 78%/84.50% LT, etc.) claimed in the description against the calldata. There is no evidence of contradiction — the single action's target and structure align with what would be expected to implement the described changes — but confidence is inherently low due to the lack of granular decoded parameters. No specific mismatches, omissions, or false claims can be identified, so this is treated as consistent with low confidence rather than flagged as a discrepancy, per the instruction not to raise warnings when confidence is low due to vague/insufficient calldata detail rather than actual contradiction.
Generated by Kvorum
04Actions
- Target
- 0x1e0c…b939
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
No forum thread is confidently linked to this proposal.
08Similar proposals
- aaveexecutedChaos Labs Ethereum V2 LT Reductions85%
- aaveexecutedV2 Ethereum LT Reductions84%
- aaveexecutedAave V2 Ethereum LT Reduction84%
- aaveexecutedEthereum V2 LT Reductions84%
- aaveexecutedChaos Labs Risk Parameter Updates83%
- aaveexecutedChaos Labs V2 Ethereum and Polygon LT Reductions83%
- aaveexecutedChaos Labs Risk Parameter Updates - Aave V2 Ethereum83%
- aaveexecutedRisk Parameter Updates for Aave v2 Ethereum - LT and LTV (DAI, USDC)82%
- aaveexecutedRisk Parameter Updates for Aave v2 Ethereum - LTs and LTVs for Long Tail Assets82%
- aaveexecutedUpdate AAVE Token LTV/Liquidation Percentages82%