Aave recently introduced the Umbrella staking system, transforming its previous insurance model into an onchain, automated safety net linked directly to individual assets. Umbrella enhances the staking dynamic, offering yields over 10% on USDC and USDT vaults while presenting GHO holders with a mismatched reward structure. The former Safety Module (SM) had a theoretical risk of slashing but faced no real enforcement. Now, under Umbrella, slashing occurs in real-time if bad debt exceeds a preset threshold, aiming for a more reliable insurance fund. Each Umbrella vault allows users to stake yield-bearing assets, earning both lending APY and a “Safety Incentive.” However, the new mechanism tags existing staked tokens with governance power but reduced yield. Migration to the new stkGHO removed slashing risks, offering a lower APY than risk-free alternatives. User feedback highlights concerns about reduced earnings under the new system, inciting discussions about adjusting profit distribution or emissions caps. Overall, the introduction of Umbrella signifies a shift from optional to immediate insurance.

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