Fewer Than 9% of Aave Loans Hold 50% of Debt

Fewer than 9% of active loans on Aave V3 Core hold approximately half of all outstanding debt, according to analysis by Galaxy Digital. The concentrated positions use Aave’s E-mode setting and rely heavily on Ethereum staking-wrapper collateral against WETH borrowing, creating a structural vulnerability to depeg events.

Galaxy’s snapshot of Aave V3 Core on August 7 identified 19,073 total loans after standard filters. Of these, the 9% cohort using E-mode carried a 90% debt-weighted loan-to-value ratio and an average health factor of 1.06, leaving only 5.7% cushion before liquidation eligibility at health factor 1.

The remaining 91% of positions maintained a 49% debt-weighted LTV and an average health factor of 1.79, reflecting substantially lower leverage. E-mode borrowers held a debt-to-equity ratio of 10.7, compared to 1.07 for standard borrowers.

Collateral Concentration and Depeg Risk

Ethereum staking and restaking wrappers accounted for 66.2% of E-mode collateral. Within that cohort, weETH held 42% of E-mode collateral, while WETH comprised 73% of E-mode debt. This configuration exposes borrowers to wrapper-to-ETH depeg risk independent of ETH price movements.

Galaxy’s May analysis modeled a 10% weETH depeg scenario, projecting 2.47 billion in debt against 2.42 billion in post-shock collateral. That scenario produced 205 accounts below health factor 1. Stress escalated sharply once depeg moved from 3% to 5%, Galaxy noted. An 8% to 9% discount level could trigger average E-mode liquidations.

Debt Composition Shift

E-mode debt declined from a 60/40 split relative to standard lending in April to a 50/50 split by August 7. The shift occurred entirely through outstanding E-mode debt decline, not through growth in standard lending.

Broader crypto lending contracted during the same period. Total crypto-related debt fell 15.08% in the second quarter to 73.2 billion, marking the third consecutive quarterly decline, according to Galaxy’s Q2 report on crypto lending.

How E-mode Works

E-mode allows Aave to extend higher borrowing limits when collateral and debt are expected to move together, reducing risk relative to unrelated asset pairs. Liquidation remains a permissionless process where liquidators repay debt and claim collateral plus a bonus.