- Slope 2 would leap from roughly 10% to a bold target of 50%, with a cautious interim risk steward step at 40%, because why not?
- Optimal utilization (U*) would drop from 92% to an invigorating target of 85%, with a teasing interim step at 87%-let’s keep things interesting!
- Slope 1 (3.5%), base rate (0%), and reserve factor (10%) will remain steadfast at their current levels, stubbornly refusing change.
- Slope 2 Risk Oracle would be either paused or floored for USDC during these tumultuous times and would reawaken once the dust settles.
Under the proposed conditions, a 100% utilization scenario would catapult the variable borrow rate to an eye-watering 53.5% and the supply rate to around 48.2%. Liao argues that such steep rates would attract new USDC deposits from savvy allocators “within hours,” making utilization drop faster than a bad pun in a comedy club.
Why the Current Rate Isn’t Clearing
Liao’s insight reveals that the composition of marginal borrowers on Aave has morphed since the April 18 rsETH debacle. External reports indicate a staggering $300 million in additional borrow flow in the 72 hours following the exploit, largely driven by what the proposal describes as “trapped-liquidity extraction”-a term that sounds far more sophisticated than it is. Users, with collateral stuck in various purgatories, are borrowing stablecoins to escape via DEX like characters fleeing a bad horror movie.
These borrowers, according to the proposal, are “structurally rate-insensitive over short horizons.” A user enduring a potential double-digit headline loss to exit a jammed position perceives a 14% borrow rate as mere pocket change for bypassing the withdrawal queue-at that rate, a week of carry costs about 27 basis points. Just a small price to pay for some peace of mind!
On the supply side, while the current rate ceiling is competitive, it’s not exactly winning any popularity contests. Allocators are now factoring in observable illiquidity rather than the instantaneous liquidity Aave once boasted.
In Liao’s view, the key lever is to attract supply rather than scare off borrowers. He argues that lifting the rate ceiling into the 35-50% range should quickly reel in LP capital, transforming the post-kink region into a veritable carnival of price discovery.
Execution Path
The proposal suggests a two-step execution: first, an immediate Risk Steward action by LlamaRisk and Aave Labs to implement the interim parameters through the 2/2 multisig, followed by full governance ratification of the target values within five to seven days via the standard ARFC → Snapshot → on-chain vote pipeline. The 5-of-9 Protocol Emergency Guardian multisig is flagged as a backup plan if stewards hesitate to act and conditions worsen.
There may be follow-on proposals for USDC on Arbitrum, Base, Polygon, Avalanche, Optimism, and Linea if those platforms exhibit similar pinning, though Liao wisely leaves that call up to LlamaRisk.
The proposal also clarifies that the DAO’s decision to flatten WETH’s IRM on April 20-lowering Slope 2 to 3% on Core-was pool-specific and complementary, not contradictory, to the USDC steepening now being proposed. Ah, the joys of clarity amidst chaos!
WETH was flattened to prevent rate-driven liquidations of stuck rsETH-backed positions during a time of socialization; USDC, however, is a robust asset facing only withdrawal-side stress. As of this writing, LlamaRisk and Aave Labs have yet to publicly comment on the proposal in the governance forum, leaving us all in suspense.
AAVE Price Reaction
The AAVE governance token was trading at a somewhat lackluster $91.99, down about 1.37% in the last 24 hours, with a trading volume of $338 million as the proposal went live. The token’s market cap hovers around $1.41 billion, a number that sounds impressive but doesn’t quite inspire confidence. Earlier, the token had surged roughly 30% from its April 18 lows, when it briefly dipped into the mid-$80s following the KelpDAO exploit, before stabilizing as Aave governance scrambled to manage the bad-debt exposure.
The muted response to Liao’s proposal suggests traders perceive the USDC parameter fix as merely a technical adjustment rather than a fresh crisis-a perspective that aligns with Aave’s own characterization of the USDC pool as a healthy asset facing only minor withdrawal-related friction, not a solvency catastrophe. You’ve got to love crypto for its optimism!
However, Aave’s Total Value Locked (TVL) has plummeted from roughly $26.4 billion to about $17 billion since the rsETH incident, highlighting the scale of deposit rotation the protocol is still grappling with. How quickly supply returns to the USDC pool following the proposed rate steepening will likely serve as a more telling signal for AAVE holders over the coming week than the headline token price itself, which is frankly just a number anyway.
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2026-04-23 10:28