Aave’s wstETH liquidations hinge on unverified financing

At block 25,780,402, LlamaRisk’s assessment of wstETH liquidation risk on Aave V3 Ethereum came back “INDETERMINATE” overall: if this collateral drops hard, does the market actually get liquidated?

The sticking point is financing. LlamaRisk flagged the “money to repay” test as “INDETERMINATE” because nothing published covers the remaining $5.86 million of debt — no credit line, no balance sheet, no backstop. “That is why this is INDETERMINATE and not FAIL,” LlamaRisk wrote in the Aave Governance assessment.

That distinction matters on both sides of the wstETH market. Borrowers carrying wstETH collateral face a liquidation process whose repayment capacity hasn’t been established. Lenders face an open question about whether the infrastructure can actually convert collateral into debt repayment during a severe price fall, even though the liquidator bonus is fixed at 6%.

The stress figures put a number on the exposure. In LlamaRisk’s two-day stress run, the 99th-percentile scenario required $7.15 million of debt repayment and $7.58 million of collateral received simultaneously. The liquidator bonus is fixed at 6%, but LlamaRisk notes that bonus stops covering the worst-case regime at around $22.85 million of repayment.

One derived figure makes the gap visible. Dividing $5.86 million by $7.15 million gives 82.0% — meaning the unverified portion accounts for most of the repayment amount the 99th-percentile scenario actually requires.

Before the current assessment, March 10 made the liquidation question concrete in a different way. Approximately $27 million in borrower positions were liquidated on Aave after a configuration issue in the protocol’s CAPO risk oracle temporarily valued wstETH about 2.85% below its market price. CoinDesk’s report on the incident noted that liquidators captured roughly 499 ETH in bonuses and profits from the discrepancy. The oracle appeared to value wstETH at roughly 1.19 ETH while the market put it closer to 1.23 ETH.

Aave Labs founder and CEO Stani Kulechov said, “There was no impact to the Aave Protocol.” Chaos Labs CEO Omer Goldberg said risk oracles “have secured hundreds of billions in loans, liquidations, and markets since go-live” and allow streaming risk-parameter updates. A Lido contributor attributed the liquidations to “an incorrect wstETH to USD price reported by this oracle mechanism,” adding that the cause had nothing to do with wstETH itself or how the Lido protocol operates — it continued running normally throughout.

Those were the explanations offered by Kulechov, Goldberg and a Lido contributor for the March 10 event. The new LlamaRisk assessment addresses a different failure point entirely: whether enough committed capital exists to repay debt once liquidation demand surges. March 10 showed that liquidations can execute during an oracle discrepancy. It didn’t publish the credit line, balance sheet, or backstop LlamaRisk says is absent from the hard-fall test.

LlamaRisk is also recommending parameter changes across Aave V3 reserves based on user behavior, on-chain liquidity, and position health from its latest review. In a separate Aave Governance post, it proposed raising the weETH supply cap on Aave V3 Core from 1.35 million to 1.5 million, while cutting the sUSDe cap from 450 million to 250 million and the PT-srUSDe-22OCT2026 cap from 75 million to 10 million.

None of that resolves the wstETH financing question. The assessment does not identify a deadline for publishing a capital commitment or clearing the “INDETERMINATE” result — at the stated block, liquidation capacity remains unverified under the stated stress assumptions.