Aave Reduces the Threshold for Sharp Rate Increases on USDT to 92%

Aave reduced the threshold at which borrowing rates for USDT in the Ethereum V3 Core pool sharply increase from 94% to 92%. This brings forward the moment of rate hikes aimed at preserving liquidity for withdrawals by suppliers. The change took effect on October 21 through a transaction by the Aave Risk Council.

At a utilization level of 94%—the share of the pool's liquidity that is lent out—the new curve provides a 7% variable borrowing rate compared to 4.5% previously, according to The Defiant's calculation based on updated parameters.

LlamaRisk, which recommended the adjustment, estimated that at the optimal point, an additional 57.8 million USDT would remain unutilized—based on approximately 2.89 billion USDT supply in its review. This concerns a change in the target buffer set by the rate curve, rather than an immediate infusion of funds or a hard borrowing limit.

The model increases rates more sharply above the optimal point, making further borrowing more expensive as the available liquidity for withdrawal decreases. The base parameters and both slope coefficients remain unchanged: the borrowing rate stays at 4.5% at the optimal point and 14.5% at full utilization.

Current Situation

As of October 26, the USDT reserve panel in Aave showed 89.26% utilization, about 2.79 billion USDT supply, and $298.81 million available liquidity. The variable borrowing rate was 4.46%, and the supplier rate was 3.57%. The pool remained below the new threshold. Suppliers' ability to withdraw immediately depends on available liquidity, not the entire amount provided to the market.

Earlier this month, liquidity was tighter: on October 8, The Defiant reported 93.74% utilization and $169.54 million available liquidity after one wallet transferred 150 million USDT from Aave to Spark Savings.

The transaction on October 21 also reduced supply limits: for USDe—from 400 to 300 million tokens, for LINK—from 11.4 to 9 million, for rETH—from 49,000 to 40,000.