Aave reduced the Ethereum Core market's USDT utilization threshold from 94% to 92%, making borrowing rates rise sharply at an earlier point. The update took effect on Oct. 21 in Ethereum block 26,241,799. Utilization measures the proportion of pool liquidity that borrowers have borrowed. Borrowers remain able to exceed the threshold, but borrowing rates increase more steeply beyond that point. The change aims to preserve more liquidity for withdrawals by increasing borrowing costs earlier, although the intended cushion remains available for borrowing or withdrawal.
Aave's two-slope model raises borrowing rates gradually before an optimal utilization point, called the kink, and more steeply afterward. The deployed parameters observed at the Oct. 23 block combined 92% optimal utilization with a zero base rate. The first slope was 4.5%, and the second slope was 10%. Those parameters produce a borrowing APR of 4.5% at the kink and 14.5% at full utilization. At a hypothetical 94% utilization, the previous curve produces a 4.5% APR. The implemented curve instead produces 7% APR at that utilization, calculated as 4.5% plus 10 percentage points multiplied by two-eighths. That calculation compares identical hypothetical utilization levels rather than the observed Oct. 23 borrowing APR. For an unchanged 1 million USDT loan, the 2.5-percentage-point difference would add 25,000 USDT in simple annual interest if both rates remained unchanged for a year. The 14.5% endpoint does not guarantee that lenders will always find cash available.
LlamaRisk's Oct. 20 recommendation put supplied liquidity at 2,892.2 million USDT. With that supply held constant, 94% utilization would leave 6%, or 173.53 million USDT, unborrowed. At 92% utilization, unborrowed liquidity would instead total 8%, or 231.38 million USDT. The modeled difference is 57.84 million USDT, roughly 57.8 million USDT. LlamaRisk also reported about 417 million USDT already unborrowed when utilization remained below both thresholds. The larger modeled cushion becomes actual cash only through users' responses and pool cash flows. Higher borrowing costs may encourage borrowers to repay or attract suppliers seeking higher returns. However, borrowers may accept the higher costs, and suppliers may withdraw before new funds arrive. The rate curve determines neither the size nor the timing of those responses.
At block 26,254,517, recorded on Oct. 23 at 09:45:59 UTC, outstanding supplier claims totaled about 2.9 billion USDT. Variable debt at that snapshot totaled 2.5 billion USDT. The aToken contract physically held approximately 391.4 million USDT. The interest-rate strategy uses a separate virtual accounting balance rather than the physical token balance. Debt divided by debt plus the virtual balance produced about 86.45% borrow utilization, below the new 92% threshold. The snapshot showed a variable borrowing APR of about 4.23%. The supplier liquidity APR was 3.29%. The Oct. 23 cash observation is separate from LlamaRisk's Oct. 20 model and does not demonstrate that the update caused deposits, repayments or withdrawals.
The strategy derives the supplier liquidity rate from the borrowing rate and utilization after applying the reserve factor. The reserve factor was 10% at the Oct. 23 snapshot, directing part of borrowing interest to the protocol treasury. Higher borrowing rates can therefore increase supplier returns and compensate suppliers for keeping funds deposited. However, interest accrual does not itself make underlying tokens immediately withdrawable. Aave's withdrawal guidance limits supplier withdrawals to available liquidity that has not been borrowed. Suppliers whose deposits secure borrowing may also need to repay debt or provide additional collateral to maintain position health before withdrawing.
Lending-pool cash has a different function from GHO conversion inventory and Umbrella deficit backstops. The operational measure is whether deposits and repayments keep pace with borrowing and withdrawals as utilization changes.
Aave Lowers USDT Utilization Threshold, Borrowing Rates Rise Sharply
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Summary
Aave cut the USDT utilization threshold in the Ethereum Core market to 92% from 94%, pushing interest rates higher at a faster pace. The change went live on Oct. 21 in block 26,241,799. The adjustment aims to keep more liquidity for withdrawals by raising borrowing costs sooner. Funding rates now climb more quickly as utilization increases, but users can still access funds or borrow with available reserves.
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