Aave's Efficient Mode Accounts for 8.91% of Total Loans, Including Over Half of Unpaid Debt

In Aave (AAVE) V3 core lending, the efficient mode accounts for 8.91% of total loan positions and includes about half of the outstanding debt. According to Galaxy Digital Research, as of August 7, the efficient mode positions recorded this ratio among 19,073 active loans. The debt-weighted LTV of the efficient mode is approximately 90%, with an average health factor of about 1.06, while the LTV of inefficient mode positions is around 49%, with an average health factor of about 1.79. The efficient mode provides high borrowing power to asset classes with high correlation, which can enhance capital efficiency when collateral and borrowed assets move in the same direction. However, the risk of liquidation may increase if price discrepancies occur. Analysis indicates that the collateral in the efficient mode is concentrated in Ethereum staking assets such as weETH, rsETH, and wstETH, signifying concentrated exposure to Ethereum staking basis. Galaxy Digital Research analyzed that if weETH were to depeg by 10%, Aave could have $2.47 billion in debt and $2.42 billion in collateral after the shock. In this case, the health factors of 205 accounts could drop below 1. Discussions on risk management are ongoing within Aave, and a proposal has been made to increase the liquidation protocol fee from 10% to 20%.

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