Aave's E-mode concentrates half of debt in 9% of positions
In brief
- Galaxy's Aug. 7 snapshot: 19,073 Aave V3 Core loans; E-mode positions (<9%) hold ~50% of total debt
- E-mode debt-weighted LTV near 90%; health factor 1.06 provides only 5.7% liquidation cushion
- Ethereum staking wrappers comprise 66.2% of E-mode collateral; weETH alone represents 42%
- 8-9% discount in wrapper value could trigger mass E-mode liquidations across the protocol
The concentration
Galaxy's August 7 snapshot of Aave V3 Core found 19,073 loans on the protocol after applying standard filters. Fewer than 9% of those positions use E-mode and account for roughly half of all outstanding debt. The gap between the two cohorts is stark. E-mode positions show a debt-weighted loan-to-value near 90% and an average health factor around 1.06. The remaining 91% of positions carry a debt-weighted LTV closer to 49%, a health factor around 1.79, and debt-to-equity near 1.07 times.
That tight health factor leaves little room for error.
What's collateralizing the bet
Ethereum staking and restaking wrappers—including weETH, rsETH, and wstETH—make up about 66.2% of the collateral backing E-mode loans, with weETH alone accounting for roughly 42%. On the debt side, WETH makes up about 73% of the E-mode group's debt. The structure is a classic correlation trade: borrowers deposit liquid-staking tokens as collateral, then borrow ETH against them.
Galaxy describes the exposure as a concentrated bet on Ethereum's staking basis and the relationship between these liquid-staking tokens and the ETH they represent.
The real danger sits in the exchange rate between the wrapper and Ethereum itself.
The risk isn't a crash in ETH price. It's the wrapper losing peg. Starting from Galaxy's 1.06 average health factor for the E-mode cohort, the built-in cushion works out to roughly 5.7% before the average position reaches liquidation. A broad-basis discount in the high single digits—around 8% to 9%—could push the average E-mode health factor toward 1. That's the liquidation threshold.
The precedent
Galaxy ran a stress test in May. A 10% weETH depeg would leave Aave with about $2.47 billion in debt against $2.42 billion in post-shock collateral, and would push 205 accounts below a health factor of 1. That scenario isn't hypothetical—weETH and other wrappers have depegged before, if briefly.
The concentration has narrowed since spring. The debt split between Aave's E-mode and standard loans ran closer to 60/40 in favor of E-mode in April and has since narrowed to roughly 50/50 by August 7, but entirely because outstanding E-mode debt declined. The number of E-mode positions hasn't shrunk—the debt per position has. That's a shift in scale, not a structural reduction in risk.
