Stablecoin issuer argues Aave’s interest rate curve is failing to clear the $1.89B pool after four days at full utilization.
Circle has proposed an emergency overhaul of the interest rate parameters on Aave V3 Ethereum Core’s USDC pool, which has been pinned at 99.87% utilization for four days in the wake of the April 18 KelpDAO exploit.
In a governance post published Tuesday, Circle Chief Economist Gordon Liao argued Aave’s current interest rate mechanism is failing to clear the market. The pool holds $1.89 billion in supply against $1.89 billion in borrows, with less than $3 million in available liquidity. Borrow rates are flat at the post-kink ceiling of roughly 14%, and the pool has contracted about $60 million in the last 24 hours as repayments are matched dollar-for-dollar by queued withdrawals.
Liao’s proposal would raise the pool’s Slope 2 parameter for USDC deposits interest rate, from roughly 10% to 40% immediately, via a Risk Steward action. That would be followed by governance ratification of a 50% target within five to seven days.
Optimal utilization would fall from 92% to 87% on an interim basis and 85% on ratification. Under the target parameters, the maximum supply rate at 100% utilization would climb from roughly 12.6% to 48.2%.
Liao’s diagnosis is that current borrowers are using USDC borrowing as a queue-bypass mechanism to exit trapped positions and are insensitive to rates at current levels. The active lever, he argued, is supply attraction: yields in the 40–50% range should pull USDC from allocators within hours, restoring healthy utilization.
The proposal also recommends pausing Aave’s Slope 2 Risk Oracle for USDC, citing its documented underperformance during a February WETH spike and the April 6 offboarding of its maintainer, Chaos Labs.
Circle’s intervention is unusual: the stablecoin issuer is formally telling Aave that the market for its asset is broken.