Aave V4 Proposal Puts DAO First in Line to Absorb Lending Losses
Aave has proposed a new framework for protecting lenders from losses in its Core liquidity Hub on Ethereum. TokenLogic put forth a proposal to provide bad-debt backstop for wrapped Ether (WETH), USDC, and USDT supplied to the Core market.
The plan would see Aave's DAO absorb initial losses through 'deficit offsets', with 33 ETH, 15,000 USDC, and 15,000 USDT allocated to each respective reserve. This is intended to provide a first line of defense against lending losses.
Umbrella underwriters would then be responsible for covering any additional losses beyond the initial DAO offset. However, they would face a 20-day cooldown period before exiting the market, during which time their staked assets remain exposed to slashing and continue earning rewards.