Aave has just changed the conditions for borrowing USDT on its Ethereum V3 Core crypto market. Since October 21, rates have increased more quickly as soon as 92% of liquidity is borrowed, compared to 94% previously. At a utilization level of 94%, the theoretical rate therefore increases from 4.5% to 7%. The decentralized finance protocol seeks to preserve more funds available for withdrawals.
In brief
- Aave lowers the optimal threshold for using USDT from 94% to 92%.
- At 94% utilization, the theoretical borrowing rate increases from 4.5% to 7%.
- The change creates an additional theoretical cushion of 57.8 million USDT.
Aave makes crypto borrowing in USDT more expensive
The change took effect on October 21, at Ethereum block 26,241,799. Aave regularly adjusts the parameters of its markets to control risks. In July, the protocol had already considered deleting several crypto reserves that had become unprofitable.
This time, the changes directly affect users who borrow USDT. The operation remains quite simple. On Aave, the borrowing rate depends on the proportion of deposits already used by borrowers. When cash begins to run out, interest increases to discourage further lending and encourage repayments.
The threshold from which this increase becomes particularly rapid goes from 94% to 92%. The other parameters of the curve remain unchanged. The base rate remains at zero, the first slope at 4.5% and the second at 10%.
At 94% utilization, the old configuration produced an annual rate of 4.5%. With the new settings, it reaches 7%. For a constant borrowing of 1 million USDT, this 2.5 point difference would represent 25,000 USDT in additional interest over an entire year, if rates remained unchanged. However, borrowings are not blocked beyond 92%. They just become more expensive.
57.8 million USDT in potential liquidity
LlamaRisk, responsible for monitoring several risks on Aave, recommended this change after reviewing the crypto protocol’s reserves. His analysis looked at approximately 2.89 billion USDT deposited, compared to 2.48 billion borrowed. The utilization rate then reached 85.6%.
With the old threshold of 94%, Aave planned to keep around 173.5 million USDT unborrowed when the market reached its optimal level. The increase to 92% brings this theoretical margin to 231.4 million.
Or 57.8 million additional USDT. Be careful, however: Aave has not injected this sum into its reserves. This is a margin calculated from the new parameters. For it to materialize, some borrowers must repay their positions or new depositors must provide funds.
The distinction matters particularly in crypto finance, where withdrawals are directly dependent on available liquidity.
Aave already knows the consequences of high demand for withdrawals. After the crisis caused by the KelpDAO hack, the protocol recorded $8.45 billion in withdrawals in less than 48 hours. The episode fueled discussions on risk management and the resistance of large DeFi protocols.
Crypto users not yet paying 7%
The new curve does not mean that all USDT borrowers now pay 7% interest. This rate corresponds to a hypothetical situation in which 94% of liquidity would be used. As of October 23, Aave showed approximately 2.89 billion USDT deposited, 2.50 billion in variable debt, and 391.4 million USDT effectively available in its Ethereum V3 Core reserve.
The utilization rate was around 86.45%. At this level, the variable borrowing rate reached 4.23%, while liquidity providers received around 3.29%. Crypto users therefore maintain conditions relatively close to those observed before the change, as long as usage remains below the new threshold.
The protocol continues to develop in parallel. Its DAO had notably envisaged a crypto application bringing together stablecoins, savings and lending. This expansion requires reserves that are sufficiently liquid to absorb withdrawal requests, including during periods of high activity. Aave now prefers to raise rates sooner rather than wait until almost all available USDT is borrowed. For lenders and borrowers alike, the 92% threshold therefore becomes a new benchmark to monitor
Maximize your Tremplin.io experience with our ‘Read to Earn’ program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
