Galaxy Research's Aug. 7 snapshot of Aave V3 Core counted 19,073 loans — and found a lopsided risk profile. Fewer than 9% of positions use E-mode, but they hold roughly half of all outstanding debt, and those loans are built on an Ethereum correlation trade with almost no room for error.
The numbers behind the concentration
E-mode borrowers carry a debt-weighted loan-to-value near 90%, an average health factor of about 1.06, and a debt-to-equity ratio of 10.7 times. The other 91% of positions are far more conservative: LTV closer to 49%, health factor 1.79, and debt-to-equity around 1.07 times. That gap isn't just a statistic — it's the difference between a loan that can absorb a market dip and one that flips to liquidation on a modest price move.
Why the wrapper tokens matter
The collateral behind E-mode loans is dominated by Ethereum staking wrappers. weETH, rsETH, and wstETH make up about 66.2% of the backing, with weETH alone at roughly 42%. On the debt side, WETH accounts for about 73% of borrowings. E-mode exists to give higher borrowing limits when collateral and debt are expected to move together, but that assumption breaks if the wrappers trade at a discount to ETH. Since the debt is fixed in WETH, a wrapper depeg weakens collateral relative to the loan. Aave calculates health factor as collateral value multiplied by weighted liquidation threshold, divided by borrowed value; below 1 triggers liquidation. From the 1.06 average, the built-in cushion is roughly 5.7%. Galaxy's rough model suggests an 8% to 9% broad-basis discount could push the average health factor to 1.
The stress test from May
Galaxy's May analysis sketched the worst case: a 10% weETH depeg would leave Aave with about $2.47 billion in debt against $2.42 billion in post-shock collateral, pushing 205 accounts below a health factor of 1. The escalation is sharp once the depeg moves from 3% to 5% — small moves in wrapper pricing produce outsized effects on health factors.
Debt is shrinking, but the risk isn't
This concentration is playing out against a broader pullback in crypto lending. Total crypto-related debt fell 15.08% from the prior quarter to $73.2 billion, a third straight quarterly decline. The split between E-mode and standard loans narrowed from roughly 60/40 in April to about 50/50 by Aug. 7 — but that's because E-mode debt shrank, not because standard loans grew. The risk profile is still tilted toward a small cohort of leveraged positions.
The next thing to watch is whether wrapper discounts widen as ETH price volatility picks up. Galaxy's quarterly snapshot will show whether the trend toward lower E-mode debt continues — or whether the remaining positions get even more levered.
