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▲ Circle, USDC, Aave/AI-generated image
USDC issuer Circle's proposed interest rate hike to decentralized finance protocol Aave has faced strong opposition from the community.
According to CryptoPotato on April 23 (local time), Circle's Chief Economist Gordon Liao proposed a significant increase in loan interest rates to address the USDC liquidity shortage in Aave V3's Ethereum core pool. The USDC utilization rate in that pool has recorded 99.87% for four consecutive days, indicating a virtual depletion of liquidity. Available liquidity has fallen below $3 million, and the total supply has decreased by approximately $60 million over the past 24 hours.
The cause of the liquidity crunch is attributed to large-scale borrowing triggered by KelpDAO's rsETH attack on April 18. Following this incident, approximately $300 million in additional loans were generated, and suppliers with locked assets began taking out loans collateralized by USDC to recover their funds. Chief Economist Liao analyzed that the current interest rate ceiling of 14% is insufficient to deter borrowing or attract new capital.
Liao presented a two-phase interest rate revision plan. As a first step, he proposed immediate action to raise the Slope 2 interest rate to 40% and lower the optimal utilization rate to 87%. He then argued that through a second-phase governance vote, Slope 2 should be increased to 50%, pushing the maximum supply interest rate to approximately 48%. Circle CEO Jeremy Allaire also supported the proposal, urging market attention.
Within the Aave community, criticism is pouring in regarding Circle's aggressive intervention. Some users pointed out that a specific company deeply involving itself in the governance of a decentralized protocol to induce rapid interest rate changes goes against market logic. Concerns were also raised that a high interest rate hike could impose an excessive burden on existing borrowers and increase market uncertainty.
Meanwhile, the Aave governance team is reviewing the validity of the proposed interest rate hike and gathering community feedback. While there is a consensus on the need for technical measures to restore liquidity, opinions are sharply divided on the method and speed of implementation. The outcome of this discussion is expected to significantly impact future cooperation models between stablecoin issuers and decentralized finance platforms.
*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*
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