Aave Proposes Safety Net for Core Markets on Ethereum

Aave is proposing a safety net for its Core markets on Ethereum, which would protect lenders from bad debt in case of loan defaults. TokenLogic has submitted a proposal to implement this 'Umbrella' plan, which would provide an initial layer of coverage through 'deficit offsets'. This means that Aave's DAO would absorb losses up to 33 ETH for Core WETH, 15,000 USDC for Core USDC, and 15,000 USDT for Core USDT.

Under this proposal, the Umbrella underwriters could lose their committed capital to cover deficits beyond the initial layer. Their funds would continue to earn supply yield until used, with coverage implemented by burning supplied Hub shares. Additional rewards would compensate participants for accepting loss risk.

The proposed targets are 800 ETH for Core WETH, 400,000 USDC for Core USDC, and 400,000 USDT for Core USDT, sized for six to eight weeks of expected loan growth. These targets are not balances already committed to protecting lenders but rather a proposed configuration.