Aave V4 Umbrella Plan Protects Lenders from Bad Debt

Aave V4 proposal introduces an umbrella plan to protect lenders from bad debt. Under this framework, Aave's DAO would absorb initial losses of $33 ETH for Core WETH and $15,000 USD for Core USDC and USDT.

The DAO's role in absorbing losses is followed by volunteer underwriters who could lose their committed capital beyond the initial layer. These underwriters would earn supply yield until used and receive additional rewards for accepting loss risk.

The proposal targets 800 ETH for Core WETH, 400,000 USDC for Core USDC, and 400,000 USDT for Core USDT reserves. TokenLogic sized these targets to cover six to eight weeks of expected loan growth.