Aave Debates Creating a Separate “Innovation” Market to Quarantine Its Riskiest Collateral

• A new Aave governance proposal would create a standalone “Innovation” lending market built on the protocol’s established V3 codebase, separate from both its Core market and its newer V4 architecture
• Risky or unproven collateral, including liquid-staking derivatives, wrapped assets and tokenized real-world assets, would undergo a 12 to 24 month stress-test period in the Innovation market before potentially graduating to Core with small initial limits
• The proposal explicitly cites recent incidents involving rsETH and tBTC as the motivating risk cases behind the idea

A strategic proposal posted to Aave’s governance forum on November 5, 2026 lays out a plan to establish a separate, standalone lending market dedicated to housing the protocol’s riskiest or least-proven collateral types, an approach the proposal frames as a direct response to a string of 2026 collateral incidents. The new market, tentatively called “Innovation,” would be built on Aave’s established V3 codebase rather than its newer V4 architecture, keeping it technically separate from both the protocol’s main Core market and its forward-looking V4 deployments.

Under the proposal, assets considered risky or unproven, including liquid-staking derivative tokens, wrapped versions of other assets, and tokenized real-world assets, would be onboarded into the Innovation market first rather than directly into Core. Each asset would then undergo a stress-test period lasting 12 to 24 months, during which its behavior under real market conditions could be observed in isolation from the protocol’s main, shared liquidity pools. Only after successfully completing that stress-test window would an asset become eligible to graduate into the Core market, and even then with deliberately small initial borrowing and supply limits rather than full capacity from day one.

The proposal explicitly names two recent incidents as the motivating examples behind the idea: a problem involving the liquid-staking token rsETH, and the more recent precautionary pause at Threshold Network affecting tBTC, Threshold’s bridged bitcoin token, which rippled into both Aave and Compound despite no confirmed exploit having occurred. In the proposal’s framing, both incidents illustrate how a single collateral type’s problems, real or merely precautionary, can create outsized disruption when that asset shares liquidity with a protocol’s core, trusted markets.

The proposal also notes that the Innovation market would charge its own, DAO-set protocol fees, distinct from the fee structure governing Core, giving Aave a mechanism to price risk differently depending on which market an asset sits in. The structural separation positions Aave more directly against rival lending protocols such as Morpho and Phoenix, which have built reputations partly around isolated-market designs that contain risk to individual pools rather than a shared pool.

Whether the DAO ultimately adopts a dedicated risk-quarantine market represents a meaningful architectural decision for how Aave balances innovation against the stability of its core lending pools going forward. The full proposal is posted on Aave’s own governance forum.

This post first appeared in Aave Debates Creating a Separate “Innovation” Market to Quarantine Its Riskiest Collateral