Aave has put forth a proposal to activate the 'Umbrella' Security Module using aTokens staking mechanisms.

This is a lending protocol within the decentralized finance (DeFi) ecosystem. Aave Aave has plans to implement the Umbrella upgrade soon, with BGD Labs, a collaborative organization of Aave, poised to activate the module.

The Aave Safety Module, a vital part of the Aave decentralized autonomous organization (DAO), currently allows users to stake various assets such as AAVE, stkABPT (the Balancer AAVE/wstETH LP token), and GHO to accrue rewards. However, it's important to note that there is a risk of slashing if the staked assets are required to rectify any outstanding debts within the Aave liquidity pools.

The Umbrella upgrade signifies an advancement of this framework. Users will transition from staking AAVE and stkABPT to staking Aave v3 aTokens, like aUSDC or aUSDT, allowing them to earn rewards while also facing the possibility of slashing. The use of Aave aTokens makes them ideal for mitigating bad debts in the Aave pools since they can be burned in emergency situations, in contrast to AAVE or stkABPT that must be liquidated.

Additionally, Umbrella boasts a robust system that triggers slashing based on the presence of bad debt (termed as a deficit) within Aave's smart contracts, moving away from reliance on governance choices or other subjective methods. Ultimately, the on-chain reward management system integrated into Umbrella is crafted to be both adaptable and equitable for stakers, ensuring capital efficiency in managing the DAO's finances.

The Umbrella upgrade will introduce a revamped staking system aimed at boosting protocol security and refining the user experience.

The new Umbrella framework will replace Aave's existing Safety Module by implementing aTokens as the primary staking assets. If an occurrence of bad debt arises, the staked aTokens will be automatically burned to offset the losses, thereby eliminating the need for governance intervention.

Post-launch, Aave's decentralized application (dApp) will feature a new section labeled 'Umbrella,' where users can explore various aTokens available for staking. Users will have the ability to stake their aTokens with Umbrella, provided there are no active borrowings against these tokens.

By participating in staking through Umbrella, users will accept the associated risks of slashing in exchange for bolstering the protocol's security and earning rewards. The rewards will be set by the Aave DAO and will be displayed in the user interface of the Aave dApp. Users will be able to engage with the Umbrella smart contracts, managing actions such as staking, initiating cooldowns, unstaking, claiming rewards, and reviewing consolidated information related to their staking activities.

While the Aavenomics proposal will indeed alter the aspects pertaining to stkAAVE and stkABPT, the Umbrella initiative functions autonomously, meaning users holding these assets won’t need to make any changes. As for stkGHO, the transition process will be uncomplicated: users can exit the old stkGHO and stake in the new Umbrella’s Staked GHO.

The launch of Umbrella is imminent. The execution proposal is being prepared by @bgdlabs is out now.

Here's what to expect ↓

— Aave (@aave) March 20, 2025

BGD Labs has laid out the framework for activating Umbrella.

The activation of the Umbrella framework within Aave will entail several decisions that must receive DAO approval. In principle, Umbrella can be rolled out across all networks that host Aave pools as it hinges solely on the implementation of Aave v3.3, which is already in place for all operational networks.

However, as a practical measure, Aave advises initiating the rollout in a few selected networks for the first two to three months. This approach will allow service providers to acclimatize to the operational functionalities of Umbrella, like Target Liquidity modeling and reward management, before it is expanded further.

For the assets, Aave proposes concentrating initially on a limited selection of highly borrowed assets within designated pools that may lead to a potential deficit.

Since the setup period for Umbrella may require some time, Aave recommends keeping slashing active for stkAAVE and stkABPT until liquidity meets its Target Liquidity goals or at least reaches satisfactory thresholds in case the target is not achieved. Umbrella However, the approach for stkGHO is unique, as Umbrella is designed to incorporate a StakeToken instance from the outset for its staking process. Hence, Aave suggests eliminating slashing and cooldown protocols from the existing stkGHO system and transitioning rewards to the new Umbrella Staked GHO, facilitating a seamless migration for all stkGHO holders.

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