What Happens if Aave Core’s 61% USDe Wallet Leaves?

In a November 8 review, risk provider LlamaRisk recommended lifting the USDe supply cap on Aave V3 Core, the protocol’s main Ethereum market, from 550 million to 750 million. It also recommended raising USDC’s borrow cap there from 2.6 billion to 2.75 billion. LlamaRisk, which is funded in part by the Aave DAO, said it would apply both changes through the Risk Steward process, which lets it adjust caps within preset bounds, with a 36-hour cooldown after each cap update.

LlamaRisk’s own figures show what happened the last time Core received more USDe room.

Where the Last Increase Went

The November 6 review doubled the cap from 275 million to 550 million while deposits stood at roughly 225 million. By November 8 the new limit was full, and the largest supplier’s share had climbed from about 27% to about 61%.

Core USDe holdings, estimated from LlamaRisk’s reported shares Holder group Nov 6 Nov 8 Largest supplier Next four suppliers All other suppliers

~61M	~335M
~117M	~165M
~47M	~50M

Rounded shares applied to reported deposits; groups are ranked separately on each date.

LlamaRisk does not name the account on either date, so the two shares may belong to different suppliers. Either way the result is the same: the account it ranked first on November 8 holds more USDe than the whole Core market held two days earlier. Suppliers outside the top five barely moved, so the doubled cap became extra room for the market’s largest positions. An account is not necessarily one owner, since a vault can pool many investors and one investor can run several addresses.

Most of these balances are not idle deposits. On November 8, 18 of the 20 largest USDe suppliers were also borrowing, and LlamaRisk described their debt as almost entirely USDC and USDT.

USDe Collateral Appears Among USDC’s Biggest Borrowers

The USDC reserve moved over the same two days. LlamaRisk’s figures imply that outstanding USDC debt on Core rose from roughly 2.2 billion to 2.57 billion between the two reviews while USDC supply eased, lifting reserve utilisation from about 74% to about 90%.

ETH and BTC assets still back most of the 20 largest USDC loans, but the mix shifted. On November 6, LlamaRisk named no USDe among that collateral. On November 8, three of those borrowers posted USDe and three posted sUSDe, Ethena’s staked version of the token, and the largest borrower’s share of USDC debt had grown from about 10% to about 14%.

Governance reviews describe each reserve separately and do not trace accounts from one to another, so they cannot show how much of the new USDC debt sits against the new USDe deposits. They do show that the two caps LlamaRisk wants to raise now serve overlapping borrowers.

Aave also hosts a public incentive for this kind of position. Ethena Labs launched Liquid Leverage on X in July 2025, offering promotional rewards to users who deposit USDe and sUSDe on Aave in roughly equal parts and borrow against them. LlamaRisk’s November 6 review recorded that Ethena had raised those rewards to 5.25% APR. In response, LlamaRisk lifted the base USDe borrow rate on six Aave markets, Core included.

How USDC’s Cap Got So Tight

USDC’s ceiling has been rebuilt over the past ten days. On October 29, a Binance hot wallet on Ethereum sent about 167,464 ETH to a single address in one transaction, and Aave froze reserves in response. The next day, LlamaRisk cut borrow caps on the largest lending paths to about 2% above pre-exploit borrowing. That removed roughly $3.7 billion of unused capacity on Aave V3, so the exploiter could not build a large position the moment markets reopened.

Core USDc’s cap fell from 2.7 billion to 2.27 billion, and the November 6 review raised it back to 2.6 billion. The proposed 2.75 billion would take it above its pre-incident level for the first time. Debt has already passed its pre-incident mark: the 2.57 billion borrowed on November 8 is about 16% above the roughly 2.22 billion outstanding just before the exploit. The near-full cap therefore reflects new borrowing as well as the post-incident cut.

What a 1.03 Cushion Absorbs

Aave’s liquidation documentation defines the health factor as an account’s collateral, weighted by each asset’s liquidation threshold, divided by its debt. Below 1, the position can be liquidated.

Among the indebted top-20 USDe suppliers, LlamaRisk puts the median at 1.03, within a range of 1.02 to 2.30. At 1.03, weighted collateral can lose about 2.9% of its value against unchanged debt before the account reaches 1. With collateral unchanged, 3% growth in debt has the same effect.

Both sides of these accounts change over time. The USDe collateral earns supply interest, plus rewards where a position qualifies, while the stablecoin debt accrues at a variable rate. A cushion this thin narrows whenever the borrowing cost outruns what the collateral earns.

The 20 largest USDC borrowers, mostly backed by ETH and BTC, carry a median health factor of 1.76. The USDe suppliers’ health factors work differently. They move with USDe’s value against the dollar tokens they owe and with the cost of that debt, which ties them directly to the USDC rate curve.

Above 94%, USDC Gets Expensive

A higher borrow cap adds permission to borrow, not USDC. New loans still draw on unborrowed supply, the same pool that funds withdrawals, as Aave’s V3 overview explains.

LlamaRisk calculates that filling the proposed cap at current supply would put Core USDC utilisation at 96.6%, above the interest-rate model’s 94% optimal point. Beyond that point, Aave’s variable rate climbs along a much steeper slope.

That slope was briefly softened. During the freeze, LlamaRisk limited stablecoin rates to 10% at full utilisation, because withdrawals had pushed reserves to between 92% and 100% and high rates were only adding to borrower debt. It restored the previous curve on October 31, arguing that a low ceiling weakens the rate signal that draws liquidity back into a reserve.

Core USDC variable borrow APR on the curve restored October 31.

For an account borrowing USDC at a 1.03 health factor, that curve sets the cost side of its 3% cushion. The 96.6% figure assumes unchanged supply, so fresh USDC deposits would lower it.

Unwinding the Largest Position

A supplier that also borrows cannot simply withdraw its USDe. It has to repay debt or add collateral along the way, keeping its health factor above 1 at each step. A large exit therefore runs through the USDC and USDT reserves as well as the USDe one.

A liquidation takes a different route. A third party repays part of the debt and receives USDe plus a liquidation bonus. To turn that USDe back into dollars, it needs a buyer or a redemption channel. Ethena’s terms limit direct redemption to onboarded Mint Users, so other liquidators depend on secondary-market depth. Coindoo examined the same gap between a collateral’s valuation and its exit route when Aave froze tBTC after its redemption path closed.

That depth is the number missing from the November 8 review. LlamaRisk’s November 4 review quantified exit liquidity for several BNB Chain assets, such as how much ETH could be sold within a 10% price impact. Its USDe assessment, covering a reserve where one account holds most of the supply, gives no comparable figure.

The Case for Raising, and What Would Test It

LlamaRisk bases its recommendations on user behaviour, on-chain liquidity and position health, and there is a fair argument that 1.03 overstates the danger here. When collateral and debt are both dollar tokens, the health factor moves with USDe’s value against them and with the interest gap, not with swings in ETH or bitcoin. Matched-asset loops on Aave routinely run this thin. The November 6 review shows the top WETH borrowers on Aave Prime, all posting wstETH, at a median of 1.04, and Core sUSDe suppliers at 1.05.

Caps also come down when demand fades. The same review cut the USDe supply cap on Aave’s Plasma market from 750 million to 650 million after deposits there grew about 1% in 30 days.

The last increase showed who was ready to use new room on Core. LlamaRisk’s next Core review would show whether another 200 million changes that pattern.

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