Aave Unveils ‘Umbrella’: Fully Onchain Staking System for Risk Management and Bad Debt Coverage

Aave has taken a major step forward in DeFi risk management with the launch of Umbrella, a fully onchain, automated system for covering protocol risk and bad debt.

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Developed by BGD Labs and approved by Aave governance, Umbrella replaces manual governance intervention with smart contracts that manage risk in real time—while rewarding users who stake their interest-bearing aTokens like aUSDC and GHO.

This new system allows users to continue earning yield on their deposited assets while also securing the protocol and earning additional rewards (such as AAVE and GHO). In the event of a deficit, staked aTokens are automatically burned to offset the loss, creating a self-sustaining, efficient safety mechanism.
“Umbrella is a major step toward fully autonomous, onchain risk management. It strengthens Aave’s vision of a safer, more resilient DeFi ecosystem.”

Stani Kulechov, Founder of Aave Labs
How Umbrella Works

Umbrella’s architecture consists of three main components:

StakeTokens: Users can stake wrapped aTokens or GHO, with a 20-day cooldown and a 2-day withdrawal window.
Rewards Controller: Uses dynamic, multi-token emissions (modeled mathematically) to optimize staking incentives.
Umbrella Core: Monitors Aave V3 pools and executes automated slashing during deficit events—no governance action required.

Staking is non-custodial and risk is isolated to the specific asset and chain—meaning staking aUSDC only exposes you to USDC pool risks.

Why It Matters

Umbrella replaces the legacy Safety Module with a more capital-efficient, automated, and transparent system. Users can stake the same aTokens they already hold, making it simple to participate in risk management without extra complexity or assets.

This upgrade:

Eliminates delays in addressing bad debt
Aligns user incentives with protocol safety
Enhances real-time, measurable risk response
Expands to high-demand assets across Ethereum and other networks
“Umbrella represents a paradigm shift in DeFi. It empowers users to protect the protocol while staying in control of their assets.”

Ernesto Boado, Co-Founder of BGD Labs
Transition, Rollout, and What’s Next

The rollout of Umbrella will be gradual, starting on Ethereum and expanding to other networks over time. During this transition, stkAAVE and stkABPT will remain active with slashing disabled until Umbrella reaches sufficient scale. Meanwhile, stkGHO is being migrated to savings GHO (sGHO)—a new option that removes cooldowns and slashing risk while continuing to generate yield.

Users can interact with Umbrella through its dedicated staking interface at stake.onaave.com. Governance will oversee network expansion, reward calibration, and ongoing optimizations.

Umbrella is built on the foundation of Aave v3.3, which introduced vital infrastructure for tracking unresolved debt and improving liquidation mechanics—laying the groundwork for fully automated deficit resolution.

To ensure safety and reliability, Umbrella has undergone four independent audits conducted by Certora, MixBytes, Ackee Blockchain, and @StErMi, affirming its adherence to Aave’s rigorous security standards.

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About Aave Protocol

Aave is a decentralized liquidity protocol enabling users to deposit, earn yield, and borrow assets without intermediaries. Governed by the Aave DAO, it also issues GHO—an overcollateralized, decentralized stablecoin.

Learn more or participate in governance at governance.aave.com.

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