An Aave governance proposal published September 11 recommends a unified rule for setting the isolated flag in Aave V3.7 E-Modes: isolate an E-Mode only when it allows borrowing an asset with no general borrow market, and leave it non-isolated otherwise. Applied consistently, this would isolate 15 E-Modes, primarily wstETH and ETHx looping categories plus WETH and WPOL correlated categories on MegaETH, Gnosis, and Polygon, while de-isolating 3 E-Modes where borrowable assets already have general markets.
For Armada's crypto repo desk, the isolation changes to wstETH and WETH E-Modes are the most relevant. These categories underpin leveraged ETH staking strategies used by hedge fund and market maker counterparties that also participate in Armada's ETH-collateral repo. Shifts in DeFi capital efficiency for these assets affect how counterparties size and manage ETH positions, which feeds back into collateral supply and haircut expectations on Armada's book.