📈 Aave's $1.6 Billion PT Token Surge: Exposure & Risk Outlook In just one month after onboarding PT tokens, Aave's Core market attracted over $1.6B in Pendle PT deposits. Driven by Ethena's USDe yields & significant user demand for fixing future yields, it’s become a go-to for leveraging on Aave, becoming the leading venue. This asset class is generating ±$7M for the protocol treasury annually. The predictable future price as reported by the dynamic linear discount rate oracle makes it even more attractive to users. Coupled with Correlated E-mode with USDT or USDe as loan assets, such borrowing setup minimizes the risk of liquidations. This expansion also brings risks: - Concentrated Liquidity: ~2/3 of PT-sUSDe-31JUL2025 total supply is now on Aave, straining Pendle AMM liquidity that resides on single, concentrated liquidity pool for each PT token maturity. - Liquidation Challenges: Limited on-chain liquidity means at an unlikely $0.12 PT prices drop up to $7M in impermanent bad debt could be incurred if liquidations fail to be executed. - USDe Dependence: Aave's oracle pegs USDe 1:1 with USDT, meaning a USDe de-peg wouldn't trigger liquidations directly, but could impact PT prices negatively, exposing Aave to the risk of impermanent bad debt. Future recommendations: LlamaRisk, as a member of Aave's Financial Committee, plans to perform further risk quantification and evaluate possible USDe integration into Aave's Umbrella module to cover for PT pricing risks. We aim to ensure that Aave can continue to capitalize on the PT opportunity while proactively mitigating potential systemic vulnerabilities and growing sustainably.