Aave V4 proposal would put DAO funds first in line to absorb lending losses

Aave V4 lenders supplying wrapped Ether (WETH), USDC or USDT to its Core liquidity Hub on Ethereum would receive a bad-debt backstop under a Sept. 11 proposal from TokenLogic. The Umbrella plan would put Aave’s DAO first in absorbing losses, followed by volunteer underwriters, while limiting this initial coverage to those three lending markets.The proposed underwriting targets are 800 ETH for Core WETH, 400,000 USDC for Core USDC and 400,000 USDT for Core USDT. TokenLogic sized them for six to eight weeks of expected loan growth. They are targets for a proposed configuration, not balances already committed to protecting lenders.For suppliers, the boundary is the specific reserve, or asset pool, receiving their deposit. Coverage for Core USDC would not extend to USDC supplied to another Hub, even though the token is the same. Capital allocated to one Hub asset cannot clear another reserve’s deficit.Who would absorb losses?Bad debt arises when liquidation exhausts a borrower’s collateral but leaves debt unpaid. Under the proposed framework, Aave’s DAO would absorb an initial layer through “deficit offsets”: 33 ETH for Core WETH, 15,000 USDC for Core USDC and 15,000 USDT for Core USDT...