Aave V4 DAO Proposes Umbrella Plan to Absorb First Losses Before Underwriters
The Aave V4 DAO has proposed an 'Umbrella' plan to absorb the first losses in case of liquidations, before underwriters take a hit. This means that for Core WETH, USDC, and USDT markets, the DAO will cover up to $33 ETH (for WETH), $15,000 USDC, or $15,000 USDT of bad debt.
The proposal, put forward by TokenLogic on September 11, also sets targets for underwriters: 800 ETH for Core WETH, 400,000 USDC for Core USDC, and 400,000 USDT for Core USDT. However, these figures are not actual capital commitments but rather goals based on six to eight weeks of anticipated loan growth.
Lenders who supply wrapped Ether (WETH), USDC, or USDT into Aave V4's Core liquidity Hub on Ethereum will be protected by this mechanism. The coverage is tied to the particular reserve the deposit lands in, not to the asset itself. For example, putting USDC into a different Hub than Core USDC will provide no protection.