Aave Raises USDT Borrowing Costs at High Utilization

Aave lowered the utilization threshold at which $USDT borrowing costs rise sharply on its Ethereum V3 Core market to 92% from 94%, bringing forward the rate increase intended to preserve liquidity for suppliers’ withdrawals.

The change took effect on Oct. 21 through a successful Aave Risk Council transaction. At 94% utilization—the share of the pool’s liquidity borrowed—the new curve produces a 7% variable borrow APR, compared with 4.5% previously, according to The Defiant’s calculation using the updated parameters.

LlamaRisk, which recommended the adjustment, estimated that it would leave an additional 57.8 million $USDT unborrowed at the optimal point, based on the roughly 2.89 billion $USDT supplied in its review. That is a change in the buffer targeted by the rate curve, not an immediate injection of cash or a hard borrowing limit.

The model raises rates more sharply above the optimal point, making further borrowing more expensive as available withdrawal liquidity shrinks. The base rate and both slope parameters are unchanged: borrowing APR remains 4.5% at the optimal point and 14.5% at full utilization.

Liquidity Below the New Threshold

On Oct. 26, Aave’s $USDT reserve dashboard showed 89.26% utilization, about 2.79 billion $USDT supplied and $298.81 million in available liquidity. It quoted a 4.46% variable borrowing APY and a 3.57% supply APY.

The pool therefore remained below the new threshold. Suppliers’ immediate withdrawal capacity depends on available liquidity, rather than the full amount supplied to the market.

Liquidity was tighter earlier this month. The Defiant reported on Oct. 8 that the reserve had 93.74% utilization and $169.54 million available, following a wallet’s transfer of 150 million $USDT from Aave into Spark Savings.

The Oct. 21 Ethereum transaction also reduced supply caps for USDe from 400 million to 300 million tokens, LINK from 11.4 million to 9 million, and rETH from 49,000 to 40,000.