Some Aave positions on Monad and Arc are close to their liquidation thresholds, but whether liquidators can recover funds in time depends on trading depth, bridge capacity and redemption queues. In an October 9 assessment, LlamaRisk found health factors of 1.01 to 1.18 for major PT-AUSD suppliers on Monad, with a median of 1.03. On Arc, the two largest syrupUSDC positions accounted for about 97% of supply and had health factors of 1.02 and 1.01.
If a borrower's health factor falls below 1, liquidators must repay the stablecoin debt on Aave before taking possession of the collateral and selling or redeeming it. The health factor shows how close a position is to liquidation, but the amount ultimately recovered also depends on the collateral's exit price, transaction costs and financing costs while redemption is pending. LlamaRisk's October 9 assessment also proposed raising market caps on Monad and Arc, making the ability to exit collateral an important factor in whether the market can absorb additional exposure.
Monad: PT-AUSD must be sold before maturity
The collateral in the Monad market is PT-AUSD-17DEC2026, a principal token issued by Pendle that represents the holder's claim to AUSD at maturity on December 17, 2026. Before maturity, PT cannot be redeemed directly for its maturity value. Under Pendle's liquidation path, a liquidator must first sell PT for SY, then exchange SY for a supported output token. Repaying Aave debt denominated in USDC or USDT0 may require another stablecoin conversion.
After maturity, PT can be exchanged for SY without the earlier market-sale step, though a further conversion may still be needed to obtain the borrowed stablecoin. The exit route therefore depends on timing: before December 17, buyer demand and price impact for PT are central; after maturity, conversion and stablecoin liquidity become the main constraints.
LlamaRisk said in its October 9 assessment that the Monad reserve's PT supply cap of 30 million tokens was fully used and recommended raising it to 60 million. The cap limits how much collateral can enter Aave, but does not mean the market can absorb those tokens without cost. The relevant Pendle pool was about 47% PT and 53% SY. A large liquidation could use up liquidity on the other side of the pool, so expected proceeds need to be assessed against the sale size and resulting price impact.
The valuation method also differs from the price a liquidator may receive. LlamaRisk said the December-maturity PT uses a linear discount oracle based on AUSD/USD. The model calculates value along a path toward maturity rather than tracking changes in the automated market maker pool price. The amount a liquidator can realize by selling seized PT depends on whether buyers are available.
The October 2 launch recommendation set a 95% liquidation threshold and a 2.62% liquidation bonus for stablecoin E-mode, alongside a 93% borrow cap. Liquidators must weigh the applicable bonus against the costs of selling and converting PT and the cost of tying up funds; the oracle valuation alone does not establish whether a liquidation is viable. USDC is the main debt asset for PT suppliers, followed by USDT0. The assets are highly correlated, allowing borrowers to maintain more leverage through relatively small moves in their prices, but leaving a narrow valuation buffer.
Arc: syrupUSDC exits depend on buyers or Ethereum redemption
Arc's collateral is syrupUSDC, a bridged share token for Maple's Ethereum yield vault. LlamaRisk's October 9 assessment found that the two largest positions represented about 97% of syrupUSDC supply and had health factors of 1.02 and 1.01. All outstanding debt among syrupUSDC suppliers was in USDC. That concentration means a small number of positions could account for most collateral exit demand, but it does not mean Aave lenders can immediately access an equivalent amount of cash.
At the time of the assessment, Aave's Arc Core Hub held 143.45 million USDC, of which 83.82 million had been borrowed and 59.63 million remained available. This balance represents the debt-token inventory available within Aave. Market demand for syrupUSDC and the cash Maple has available for redemptions determine whether the collateral can be liquidated smoothly; they are separate pools of funds.
LlamaRisk's September assessment of Arc used liquidity data from September 23. It found that sale proceeds on an Arc-based Uniswap V4 syrupUSDC/USDC venue began to saturate at close to $500,000 as the pool's USDC reserves were depleted. For a larger liquidation, a liquidator might need to find other buyers or bridge the token to Ethereum and request redemption.
The assessment also noted that Arc had no native redemption route at the time. Holders could sell in the local market or bridge syrupUSDC to Ethereum before submitting a redemption request. The bridge was expected to take two to five minutes under normal conditions, with throughput of about $10 million per hour, but that covers only the transfer. Maple redemptions enter a first-in, first-out queue and are processed as liquidity becomes available.
Maple's terms state that most withdrawals are completed within 24 hours, though waits can extend to 30 days. Its contract structure also indicates that a holder's claim on the pool's value may exceed the cash immediately available for withdrawal. A liquidator using this route must first arrange USDC to repay the Aave loan, then wait to recover funds through Ethereum redemption. Bridge capacity, available redemption cash and financing costs during the wait all affect the economics of liquidation.
Arc cap increases draw on shared liquidity
LlamaRisk's Arc listing recommendation used Chainlink's syrupUSDC/USDC exchange rate, with a CAPO adapter to cap USDC/USD. The exchange rate reflects the Ethereum vault's exit value, but proceeds from a local-market sale still depend on trading depth. The recommendation also set a 92% loan-to-value ratio and a dynamic liquidation bonus capped at 4%; the actual bonus varies with liquidation conditions.
The Maple Spoke on Arc shares the Core Hub's USDC reserves with the Main Spoke. In Aave's hub-and-spoke structure, Spoke-level caps limit individual exposures, while the Hub handles shared liquidity and accounting. Under Arc's current setup, the Maple Spoke's exposure falls within the Core Hub's shared solvency pool. Monad's V3 market and other Hubs on Ethereum have different boundaries and cannot be assessed using the same liquidity assumptions.
An October 9 Arc proposal recommended raising the Maple Spoke's USDC borrow cap from 23 million to 46 million and the syrupUSDC supply cap from 25 million to 50 million. At the time, the borrow cap was fully used and the higher supply cap was 87.8% utilized. The caps constrain debt and token supply separately; actual additional exposure depends on subsequent deposits and borrowing.
For Aave lenders, the key question is not the health factor alone, but whether recoverable collateral proceeds can cover debt repayment, conversion and trading costs, and the cost of waiting. PT-AUSD on Monad must be sold before its December maturity, while syrupUSDC on Arc depends on local buyers or a bridge to Ethereum followed by Maple redemption. Data from October 9, 2026, showed some positions already close to liquidation; the exit process will determine how much cash liquidators can ultimately recover.