Thread by @PinkBrains_io

In 2 days from now, a big safety upgrade will be executed on @aave

- A more resilient safety model for Aave
- Possibly 12% APY on stablecoin staking, 6% APY on ETH

8 things you should know about Aave Umbrella 👻🧵

1️⃣ What's Aave Umbrella?

A new system that lets you stake aTokens - the interest-bearing tokens you get when lending on Aave (aUSDC, aGHO, aWETH) to earn rewards

In return, you take on risk: if borrowers don’t repay and Aave ends up with bad debt (deficit), your staked aTokens can be slashed to help cover the loss

2️⃣ Why is Aave Umbrella better than Safety Module (the current system)?

Safety Module: Users stake $AAVE or LP tokens

=> Not ideal because if Aave has a shortfall in stablecoins like USDC, it has to sell the staked $AAVE to cover it, causing sell pressure and delays.

Umbrella:

- Users stake aTokens, which are already the right asset type. If there's a loss in USDC, aUSDC can just be burned. No need to sell tokens

- Slashing is automatic and based on smart contract data. No need to wait for a governance vote

=> A faster and more resilient safeguard for Aave

3️⃣ How Aave Umbrella works:

1/ Users stake wrapped aTokens (like wrapped aUSDC) into Umbrella
2/ Earn staking rewards + regular Aave aToken yield (in either GHO, AAVE, USDC, etc.)
3/ Stakers accept slashing risk, only on the asset and network you staked
4/ Cooldown required before withdrawing (20 days + 2-day window)

For example, if you stake your aUSDC on Aave v3 Ethereum, you'll earn the base yield + extra Umbrella aUSDC rewards

If USDC deficit appears on the Aave pool, you are only accepting slashing risk for borrowed USDC on that pool in Arbitrum

4️⃣ How will stakers be protected?

Aave introduced a “deficit offset” for each asset. It’s a buffer.

The Aave DAO treasury covers first, before stakers are touched.

Example: If USDT’s offset is set to $100k, then no aUSDT staker gets slashed unless the bad debt on USDT exceeds $100k.

So, it’s a shared defense: DAO takes risks first, and rewards stakers for being next in line.

5️⃣ How are rewards calculated?

Umbrella uses a smart reward curve, in which:

- A target liquidity and a maximum emission rate of rewards are set
- Rewards increase if the staked amount is below the target to encourage more staking
- Rewards softly decrease if staked capital goes above the target
- The curve will smooth out reward emission, avoiding crazy APYs early on

This makes the system more predictable and sustainable.

6️⃣ Is there a risk?

Yes, there’s slashing risk, but it's designed to be rare and small

Example: In a recent month, Aave only had $400 in deficit, across $9.5B in borrows. Umbrella will handle these kinds of tiny deficits automatically.

Plus, rewards + lending yield usually far outweigh any potential loss

7️⃣ Who controls Umbrella?

- DAO decides which assets and networks Umbrella supports
- DAO sets the reward parameters and manages funds
- Slashing happens automatically, based on pool data
- UI is open source - anyone can host and run their own interface

8️⃣ I'm a current stakers, what should I do?

- stkAAVE/stkABPT: you can chill now. But over time, they will be phased out once Umbrella reaches the target liquidity

- stkGHO: will move to the new Umbrella version from day 1. The switch should be simple

As a delegate on Aave DAO, we fully support the Umbrella upgrade.

The proposal passed with unanimous approval, 100% in favor. Execution is set for June 5th.

Want to amplify your voice in future proposals?

👉 We’d appreciate your delegation to our address (represented by @DefiIgnas): 0x3ddc7d25c7a1dc381443e491bbf1caa8928a05b0

Read the full Aave Umbrella activation below: governance.aave.com/t/arfc-aave-um…