LlamaRisk Proposes Freezing Three Liquid Staking Tokens on Aave V3 Core

What LlamaRisk Is Proposing

Aave's Core market may soon get much pickier about collateral. LlamaRisk, which receives part of its funding from the Aave DAO, proposed on Nov. 10 that Aave freeze three of its larger tokens on Aave V3 Core: StakeWise's staked ether token osETH, Lombard's yield-bearing bitcoin token LBTC, and Rocket Pool's liquid staking token rETH. Six small reserves would go too. That's a broad cut for a market that's built on accepting a wide range of collateral. The goal, in LlamaRisk's words, is to keep Core for established, liquid collateral and shift riskier assets to Aave V4.

Only three of the five named assets are actually new. Kelp DAO's restaked ether token rsETH has been frozen on Core since April. Threshold Network's bitcoin token tBTC has been frozen since Oct. 31, after Threshold paused minting and redemptions. So the proposal is less a sudden reaction than a continuation of a pattern. If you're tracking how Aave handles collateral that's gone wrong, that history matters more than the headline list.

The three new freezes cover $538.6 million of collateral backing $364.1 million of debt, based on a tally of LlamaRisk's Nov. 9 figures. Across everything in scope, LlamaRisk counted $1.33 billion of collateral backing $1.03 billion of debt. The DAO currently earns about $3.7 million a year from that debt. Those numbers tell you the stakes. The frozen assets are a meaningful slice of the book, not a rounding error.

What a Freeze Actually Does

A freeze blocks new deposits and new borrowing against an asset and sets its loan-to-value (LTV) ratio, the share of a deposit's value a user can borrow, to zero. Existing positions don't get unwound. LlamaRisk CEO Adam Sadowski described the mechanism in an interview recorded Nov. 4 as "a one-way valve where users can always exit, but no new exposure can come in." The proposal says existing positions stay "untouched and unaffected."

The exposure is concentrated in osETH. It carries $279.4 million of collateral backing $256.6 million of wrapped ether (WETH) loans, at roughly 14 times leverage. That's just over half of the new freezes' collateral, which makes osETH the centre of gravity for this decision. And that's the number that worries me most. Leverage at that multiple leaves little room for a price swing before positions get stressed. The article doesn't spell out how the 14x figure is calculated, and the raw collateral-to-debt numbers look less extreme than that multiple suggests, so I'd want to see the methodology before drawing firm conclusions. The most likely explanation is that the figure reflects looped positions, where users borrow against the same staked ether repeatedly, but that's an inference rather than something the source states.

The plan also raises the reserve factor, the share of borrowers' interest that goes to the DAO rather than lenders, to 99% on seven frozen reserves that still carry more than $20,000 of debt. Borrow rates would stay the same. Here's the thing: a reserve factor that high is a clear signal that the DAO wants to collect whatever revenue remains from those markets while they wind down. Lenders in those reserves would see their share of interest shrink to almost nothing, and that's the part most people overlook when they read a proposal like this.

If exposure doesn't shrink, the proposal allows stepwise cuts to liquidation thresholds, the collateral level at which a loan can be liquidated. Only as a final step would WETH borrow rates rise, targeting the rsETH and osETH leveraged loops. LlamaRisk was explicit about the limits: "We will not make abrupt parameter changes that would liquidate significant positions." That's a reassuring line, though it's a promise about process, not a guarantee about market conditions. A sharp drop in the price of staked ether would test that promise regardless of what the parameters say.

StakeWise Wants Its Own Vote

On Nov. 11, a poster signing as StakeWise's founder asked LlamaRisk and the DAO to "move the proposed osETH freeze to a separate vote." That request turns a single governance item into a question about how Aave should bundle decisions. It's also the most direct pushback in the public record so far.

The proposal is an Aave Request for Final Comments (ARFC) and is still under discussion on Aave's governance forum. As of Nov. 11, no vote had been posted to the DAO's Snapshot space. That's a meaningful gap. An ARFC is a stage for feedback, and the wording and scope can still change before anything reaches a formal vote. If you're following this, the forum thread will tell you more than any summary, including this one.

Bundling five assets into one proposal makes it efficient. It also means a single vote covers tokens with very different exposure profiles, from a bitcoin wrapper with a recent pause to a staked ether token with heavy leverage. Lumping them together forces voters to accept or reject a package when they might want to treat each asset on its merits. StakeWise's objection is partly about its own token, but the underlying point applies to the whole list.

What This Means for Aave's Next Phase

Stepping back, this proposal is less about five tokens than about where Aave wants its risk to live. Core is the flagship market, and the stated plan is to keep it for assets that are established and liquid. Riskier collateral moves to V4, which the source doesn't describe in detail, so it's hard to judge how well that split will work in practice. My read is that the idea is sound on paper, but it depends on V4 being ready to absorb those assets and users without a gap in service.

There's also a governance signal here. The DAO's handling of osETH will show whether it treats asset-level risk as something to vote on individually or something to batch and approve as a package. Either approach has costs. Individual votes are slower and can stall, while batched votes move faster but give dissenters fewer clean options. Neither is obviously right, and the outcome of the StakeWise request will set a precedent for future proposals.

For anyone building on or around Aave, the practical takeaway is to watch the parameters, not just the headline. Freezes, reserve factors, and liquidation thresholds are the levers that actually change how positions behave. And that's where the real consequences will show up first, long before any final vote is tallied.