9% of Aave V3 Positions Hold Half of Protocol Debt

Galaxy Digital’s Aug. 7 snapshot of Aave V3 analyzed 19,073 loans after standard filters and found fewer than 9% of positions using E-mode account for roughly half of the protocol’s outstanding debt. Those positions are concentrated in loans that borrow WETH against liquid-staked ETH wrappers.

The E-mode subset shows a debt-weighted loan-to-value near 90%, an average health factor of about 1.06 and a debt-to-equity ratio around 10.7 times. The remaining roughly 91% of analyzed loans have a debt-weighted LTV near 49%, an average health factor around 1.79 and a debt-to-equity ratio near 1.07 times, according to the snapshot.

Collateral in the concentrated E-mode group is heavily weighted to staking wrappers. Galaxy found weETH, rsETH and wstETH together make up about 66.2% of that cohort’s collateral, with weETH representing roughly 42%. On the liability side, WETH accounts for about 73% of the cohort’s outstanding debt.

E-mode on Aave permits higher borrowing limits when collateral and debt are expected to move together, allowing higher LTVs when the two assets correlate closely. If a wrapper token begins trading at a discount to the ETH it represents while debt remains denominated in WETH, the collateral weakens relative to the debt even if ETH’s market price does not change.

Aave calculates a position’s health factor by multiplying collateral value by a weighted liquidation threshold and dividing by total borrowed value. Using the E-mode cohort’s average health factor of 1.06, Galaxy estimated a built-in cushion of roughly 5.7% before the average position reaches the liquidation threshold. Applying that cushion to the 66.2% share of collateral held in staking wrappers suggests a broad-basis discount in the high single digits, about 8% to 9%, would push the cohort average toward a health factor of 1.

In a May stress test, Galaxy modeled a 10% depeg of weETH and estimated Aave would have about $2.47 billion in debt against $2.42 billion in post-shock collateral, which would place 205 accounts below a health factor of 1. The report said stress increased sharply as the wrapper/ETH basis moved from 3% to 5%.

Borrowers facing a widening basis can add collateral or repay part of their WETH debt. If neither action occurs and a position’s health factor falls below 1, the position becomes eligible for permissionless liquidation, in which liquidators repay part of the debt and seize collateral plus a liquidator bonus.

Galaxy’s broader second-quarter report showed total crypto-related lending fell 15.08% quarter over quarter to $73.2 billion. The split between Aave’s E-mode and standard loans narrowed: in April outstanding debt skewed roughly 60/40 in favor of E-mode, while by Aug. 7 that share had declined to about 50/50 because E-mode debt decreased. Despite that decline, the concentrated E-mode cohort still represented about half of platform debt while comprising fewer than 9% of positions.