Circle Proposes Emergency Rate Overhaul for Aave's Frozen USDC Pool

Circle has proposed an emergency overhaul of interest rate parameters on Aave V3 Ethereum Core’s USDC pool, which has been pinned at 99.87% utilization for four days following the April 18 KelpDAO exploit, according to a governance post published Tuesday. Circle Chief Economist Gordon Liao argued that Aave’s current interest rate mechanism is failing to clear the market.

Current Pool Status

The USDC pool holds $1.89 billion in supply against $1.89 billion in borrows, with less than $3 million in available liquidity. Borrow rates remain flat at the post-kink ceiling of roughly 14%, and the pool has contracted about $60 million in the last 24 hours as repayments are matched dollar-for-dollar by queued withdrawals.

Proposed Parameter Changes

Liao’s proposal would raise the pool’s Slope 2 parameter for USDC deposits interest rate from roughly 10% to 40% immediately via a Risk Steward action. This would be followed by governance ratification of a 50% target within five to seven days.

Optimal utilization would fall from 92% to 87% on an interim basis and 85% upon ratification. Under the target parameters, the maximum supply rate at 100% utilization would climb from roughly 12.6% to 48.2%.

Economic Rationale

Liao’s diagnosis is that current borrowers are using USDC borrowing as a queue-bypass mechanism to exit trapped positions and are insensitive to rates at current levels. According to the proposal, the active lever is supply attraction: yields in the 40–50% range should pull USDC from allocators within hours, restoring healthy utilization.

Risk Oracle Recommendation

The proposal also recommends pausing Aave’s Slope 2 Risk Oracle for USDC, citing its documented underperformance during a February WETH spike and the April 6 offboarding of its maintainer, Chaos Labs.

Circle’s intervention is unusual, as the stablecoin issuer is formally telling Aave that the market for its asset is broken.