Aave V3 LTV Change: New LSSOL Rules Threaten Positions (2026)

Aave DAO Faces Emergency Vote After Gauntlet Flags Critical LSSOL Risk

Gauntlet, Aave's primary market risk manager, has just issued a critical risk alert for the Aave V3 deployment, specifically targeting Liquid Staked Solana (LSSOL) as collateral. This has swiftly led to an emergency Aave DAO proposal to tighten Lending-to-Value (LTV) ratios and liquidation thresholds for LSSOL, effective immediately upon passing. The move comes as Gauntlet’s expanded simulation platform, designed for continuous market risk management for Aave V3 markets, identified a concerning vulnerability in LSSOL's risk profile amid increasingly bearish market conditions. For many existing borrowers, this means a significantly elevated risk of liquidation, particularly as market sentiment remains cautious, bordering on outright fear.

This isn't an arbitrary decision. Gauntlet consistently conducts detailed Aave Market Risk Assessments, providing the community with data-driven insights to maintain protocol health. Their analysis, presented to the Aave governance forum just yesterday, February 23, 2026, highlighted LSSOL's inherent volatility combined with its current utilization rates, projecting potential cascading liquidations if the asset experienced a sudden, sharp downturn. Given the broader market's current trajectory—Bitcoin is trending, but overall sentiment is down and capital preservation is key—such an emergency adjustment is a proactive, if painful, measure to safeguard the protocol and its users.

The Key Changes

The emergency proposal centers on two core risk parameters for LSSOL on Aave V3:

Lending-to-Value (LTV) Ratio: Proposed to decrease from 70% to 55%. This means for every $100 of LSSOL collateral, you can now only borrow $55, down from $70.
Liquidation Threshold: Proposed to decrease from 75% to 65%. Your position will be liquidated sooner—when your borrowed value reaches 65% of your collateral value, rather than 75%.

These adjustments are handled via Aave's sophisticated smart contracts designed for risk parameter changes, underscoring the DAO's agility in responding to dynamic market threats. As of this writing, the proposal is undergoing a rapid-fire governance vote, with high expectation of passage within the next 24-48 hours.

Why This Matters for DeFi Users

These parameter changes aren't theoretical; they have immediate and tangible consequences for anyone interacting with LSSOL on Aave V3. A lower LTV means less borrowing power from the outset, while a reduced liquidation threshold directly translates to a lower health factor for existing positions, pushing them closer to the dreaded liquidation zone. This is particularly salient in a bearish environment where asset prices are already under pressure.

For Lenders

For those supplying LSSOL to Aave V3, this change is largely positive. It reduces the risk of bad debt accruing on the protocol by ensuring that borrowers' positions are liquidated earlier, providing a larger buffer for the protocol to absorb price shocks. While it might marginally decrease the appeal of lending LSSOL due to potentially fewer borrowers, the enhanced safety for your deposited capital outweighs this in volatile periods. You're less likely to see your LSSOL collateral devalue beyond the point where a borrower's debt can be repaid.

For Borrowers

If you have an open loan collateralized by LSSOL on Aave V3, this is a critical alert. Your health factor will drop significantly overnight once the proposal passes. For instance, a position with a 1.2 health factor under the old parameters might suddenly find itself at 1.05 or even lower with the new LTV and liquidation threshold. Below 1.1 health factor is, in my experience, the dangerous zone, especially when gas fees on Ethereum can spike to $50+ during market stress, making it expensive to manage positions. A common mistake I've seen over the years is borrowers using near-max LTV to optimize capital efficiency—a strategy that now backfires dramatically for LSSOL collateral.

Market Reaction So Far

The immediate market reaction to the proposed changes, even before official implementation, has been a cautious deleveraging among some LSSOL borrowers on Aave V3. We've seen a slight uptick in LSSOL being withdrawn or used to repay loans, indicating users are taking proactive steps. Overall, the market remains firmly bearish, with general sentiment reinforcing a focus on risk management over aggressive yield farming. While Gauntlet's TVL sits at a robust $1.30B, showing confidence in their risk curation, the broader DeFi market is consolidating. Projects like Resolv (Basis Trading) and Strata Markets (Yield) are seeing moderate TVL gains of 11.6% and 11.4% respectively in the last 24 hours, but these are isolated pockets of positive movement in an otherwise muted landscape. The narrative is currently dominated by capital preservation, not expansion.

What You Should Do Now

Taking immediate, decisive action is paramount to protect your capital and avoid unnecessary liquidations. Procrastination in DeFi often leads to significant losses.

If you're currently using LSSOL as collateral on Aave V3: Immediately check your health factor. If it's below 1.25, you are in a precarious position. You have two primary options: a) Repay part of your loan: This is the most direct way to increase your health factor. Even a small repayment can provide a much-needed buffer. b) Add more collateral: Supplying additional LSSOL (or a more stable asset like ETH or USDC if available) will also boost your health factor. Use our Health Factor Calculator to model the impact of these actions before you commit them on-chain. To truly understand your risk, use our Liquidation Price Calculator to identify the exact price point at which your LSSOL position becomes vulnerable.
If you're considering borrowing against LSSOL: Reconsider your strategy. The reduced LTV makes LSSOL a less capital-efficient collateral option, and its volatility in a bearish market adds significant risk. Explore more stable collateral options like ETH or major stablecoins, or consider strategies with higher risk parameters on different assets. If you do proceed, borrow well below the new LTV, leaving a substantial buffer, and monitor your position constantly.
If you're just watching: This serves as a stark reminder of the dynamic nature of DeFi risk parameters. Keep an eye on Aave's governance forum for further Gauntlet risk assessments and proposals. The proactive adjustments by Aave DAO, guided by Gauntlet, are designed to protect the protocol’s integrity, which is ultimately beneficial for all users in the long run. Understand that parameters like these can change quickly, especially for highly volatile assets or during periods of market stress. For a deeper dive into the mechanics of DeFi lending and understanding these dynamic changes, our DeFi Lending Guide is an excellent resource.

Our Take

While painful for current borrowers, this emergency LTV and liquidation threshold adjustment for LSSOL on Aave V3 is a necessary evil. Gauntlet's continuous risk management, especially with their expanded simulation capabilities for V3 markets, is precisely what gives Aave its robust reputation. We've seen similar, albeit often slower, adjustments across various protocols, notably after events like the UST collapse in May 2022 or the FTX fallout in November 2022. The ability of the Aave DAO to respond swiftly to identified risks is a testament to its decentralized governance model. The move reinforces the ongoing shift in market sentiment: capital preservation is paramount. Users cannot afford to be complacent with their health factors, especially when leveraging volatile assets. This isn't just about LSSOL; it's a broader signal that risk parameters for other altcoins and LSTs could also see adjustments if market conditions continue to deteriorate.

Timeline to Watch

Short-term (this week): Expect the Aave DAO proposal to pass, leading to an immediate adjustment of LSSOL's LTV and liquidation threshold. We will likely see further deleveraging on Aave V3 as users adjust their positions, potentially causing minor downward pressure on LSSOL itself due to selling to repay loans. Gas fees on Ethereum could see spikes if many users rush to adjust positions simultaneously.
Medium-term (this month): Gauntlet will continue to monitor LSSOL and other volatile assets. Depending on market performance, further parameter adjustments—either upward or downward—could be proposed. The current bearish sentiment suggests more caution, meaning we might see similar tightening on other speculative collateral types across DeFi. User behavior will likely shift towards more conservative borrowing strategies.
Long-term: This event highlights the growing maturity of DeFi risk management. Protocols like Aave, supported by experts like Gauntlet, are becoming more resilient to market shocks. However, it also underscores the continuous need for users to actively manage their positions and understand the underlying risks. As the DeFi landscape evolves, expect more dynamic, algorithmically driven risk adjustments to become the norm, requiring constant vigilance from participants.

Disclaimer: This content is for educational purposes only and should not be considered financial advice. DeFi protocols carry inherent risks including smart contract vulnerabilities, market volatility, and potential loss of funds. Always do your own research and never invest more than you can afford to lose.

Ready to put this knowledge into action? Try our Aave Position Simulator to simulate your positions and optimize your DeFi strategy risk-free.