Concentrated leverage in Aave's liquid staking correlation trade creates systemic risk that could trigger a liquidation cascade if wrapper tokens depeg from ETH by 8-9%.

"Just 9% of Aave positions hold approximately half the protocol's total debt. Their average health factor sits at 1.06. A health factor of 1.06 means the collateral is worth 6% more than the minimum required to avoid liquidation. For these positions, that translates to a buffer of roughly 8% to 9% in wrapper discount before liquidations begin."

"On Aave, the largest decentralized lending protocol, just 9% of positions carry roughly half of the platform's total debt. The average health factor on these positions sits near 1.06, meaning an 8% to 9% wrapper discount could trigger a liquidation cascade on chain."