E Mode

High Efficiency Mode (E-Mode)

Overview

High Efficiency Mode (E-Mode) is an Aave feature that enables higher borrowing power when working with correlated assets. By grouping assets that share similar price dynamics, E-Mode allows users to maintain safer positions with higher loan-to-value ratios.

Key Concepts

Asset Categories

E-Mode groups assets into categories based on price correlation:

1. Stablecoins: Assets like USDC, DAI, USDT
2. Liquid Staking Tokens (LSTs): Assets like stETH, wstETH
3. Other categories: Added through governance as needed

Risk Parameters

Each E-Mode category has specific parameters that are set through governance. These parameters can be adjusted based on market conditions and risk assessments.

How E-Mode Works

Activation Process

1. User deposits supported assets as collateral
2. User activates E-Mode for a specific category
3. New risk parameters apply immediately
4. User can now borrow assets within the same category

Example Transaction

function setUserEMode(uint8 categoryId) external;

Limitations

• Can only borrow assets from the same E-Mode category
• Must disable E-Mode to borrow other assets
• Requires repaying non-category borrows before enabling

Use Cases

Stablecoin Trading

1. Deposit 1000 USDC as collateral
2. Enable stablecoin E-Mode
3. Borrow up to 950 DAI (95% LTV)
4. Execute stablecoin trading strategies

LST Leveraging

1. Deposit 10 stETH
2. Enable LST E-Mode
3. Borrow up to 8 wstETH (80% LTV)
4. Stake for additional yield

Risk Considerations

Benefits

• Higher borrowing power for correlated assets
• Lower liquidation risk due to price correlation
• More capital efficient positions
• Better rates for similar-risk assets

Risks

• Correlation breakdown between assets
• Limited to category-specific borrowing
• Must monitor correlation changes
• Category-wide market events may affect all positions

Best Practices

Position Management

1. Monitor asset correlations regularly
2. Maintain safety buffer below maximum LTV
3. Have exit strategy for correlation breakdowns
4. Understand category-specific risks

Risk Mitigation

1. Use multiple collateral sources within category
2. Set personal limits below protocol maximums
3. Monitor market conditions affecting category
4. Maintain liquidation buffer

Technical Implementation

Enabling E-Mode

// Example implementation
IPool pool = IPool(POOL_ADDRESS);
pool.setUserEMode(CATEGORY_ID);

Checking E-Mode Status

function getUserEMode(address user) external view returns (uint256);

Governance

Category Management

• Categories created/modified through governance
• Parameters adjustable via proposals
• New assets added to categories through voting
• Regular review of category performance

Parameter Updates

• LTV ratios
• Liquidation thresholds
• Category composition
• Asset eligibility

Market Impact

Protocol Benefits

• Enhanced capital efficiency
• Reduced liquidation risks
• Better risk-adjusted returns
• More competitive positions

User Benefits

• Higher borrowing power
• Lower risk for correlated positions
• Better rates on similar assets
• More trading strategies available