{
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    "date": "2026-04-24T09:03:54",
    "date_gmt": "2026-04-24T02:03:54",
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    "slug": "circle-economist-proposes-50-rate-ceiling-to-snap-aaves-usdc-liquidity-crisis",
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    "link": "https:\/\/hbbgroup.net\/en_us\/circle-economist-proposes-50-rate-ceiling-to-snap-aaves-usdc-liquidity-crisis\/",
    "title": {
        "rendered": "Circle Economist Proposes 50% Rate Ceiling to Snap Aave’s USDC Liquidity Crisis"
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        "rendered": "<div>\n<div>\n<h4 color=\"#333\">In brief<\/h4>\n<ul>\n<li>An economist at USDC issuer Circle proposed an emergency overhaul of Aave\u2019s lending mechanics, advocating for a 50% maximum borrowing rate.<\/li>\n<li>Making Aave an \u201cirresistible destination\u201d for capital should alleviate a liquidity crisis that has left stablecoins trapped in the DeFi giant for the past five days, he said.<\/li>\n<li>Meanwhile, liquid staking protocol Lido fielded a proposal that would divert funds to a dedicated relief vehicle for Aave users.<\/li>\n<\/ul>\n<\/div>\n<p><span>An economist at USDC issuer Circle <\/span><a href=\"https:\/\/governance.aave.com\/t\/arfc-improve-liquidity-buffer-for-usdc-on-aave-v3-ethereum-core-raise-slope-2-lower-optimal-utilization\/24684\" target=\"_blank\" rel=\"nofollow external noopener\"><span>proposed<\/span><\/a><span> an emergency overhaul of<\/span><a href=\"https:\/\/decrypt.co\/resources\/what-is-aave-inside-the-defi-lending-protocol\" target=\"_blank\"><span> Aave<\/span><\/a><span>\u2019s lending mechanics on Wednesday, calling for a massive interest rate hike to break a liquidity crunch that has left users\u2019 funds trapped on the lending protocol for the past five days.<\/span><\/p>\n<p><span>After users <\/span><a href=\"https:\/\/decrypt.co\/364849\/kelp-dao-exploit-aave-liquidity-crunch-6-2-billion-withdrawal-panic\" target=\"_blank\"><span>borrowed<\/span><\/a><span> massive amounts of stablecoins to escape fallout associated with Kelp DAO&#8217;s recent $291 million exploit, quadrupling the maximum interest rate on Aave should shock the system back into balance, according to Circle Chief Economist and Head of Research Gordon Liao.<\/span><\/p>\n<p><span>Under the proposal, the maximum borrowing rate for USDC on Aave could rise as high as 50%, incentivizing users to repay debt and making the lending protocol an \u201cirresistible destination\u201d for capital that would enable depositors to have a better chance of withdrawing funds, he wrote.<\/span><\/p>\n<p><span>With borrowing costs currently capped at a rate of 14%, Liao indicated the cost of capital remains low enough that users are opting to keep positions open instead of repaying their debt. The so-called utilization rate for USDC has meanwhile been pinned around 100% since Sunday, signaling that liquidity for lenders has effectively dried up, according to <\/span><a href=\"https:\/\/aavescan.com\/ethereum-v3\/usdc\" target=\"_blank\" rel=\"nofollow external noopener\"><span>Aavescan<\/span><\/a><span>.<\/span><\/p>\n<p><span>Liao\u2019s proposal reflects widespread and ongoing efforts to address the liquidity crunch that has shaken confidence in <\/span><a href=\"https:\/\/decrypt.co\/resources\/defi-decentralized-finance-explained-guide-learn\" target=\"_blank\"><span>decentralized finance<\/span><\/a><span> and <\/span><a href=\"https:\/\/aavescan.com\/protocol\/totals\" target=\"_blank\" rel=\"nofollow external noopener\"><span>prompted<\/span><\/a><span> users to yank $12 billion in digital assets from the sector\u2019s most battle-tested protocol in a handful of days. As of Thursday, Aave\u2019s protocol held around $15.47 billion in total assets.<\/span><\/p>\n<p><span>Beyond letting rates rise, Liao\u2019s proposal seeks to lower the \u201coptimal\u201d utilization rate for USDC on Aave to 85% from 92%. The lower mark would reduce the threshold at which borrowing costs steepen for users, a move aimed at creating a sustainable cash buffer for withdrawals.<\/span><\/p>\n<p><span>Liao noted that his proposal only reflects his personal views, yet the suggestion was amplified by Circle co-founder and CEO Jeremy Allaire in an X <\/span><a href=\"https:\/\/x.com\/jerallaire\/status\/2047010703882535280?s=20\" target=\"_blank\" rel=\"nofollow external noopener\"><span>post<\/span><\/a><span> on Thursday.<\/span><\/p>\n<p><span>Many users who borrowed stablecoins on Aave did so because they were unable to withdraw <\/span><a href=\"https:\/\/decrypt.co\/resources\/what-is-ethereum-quickly-explained-four-minute-guide\" target=\"_blank\"><span>Ethereum<\/span><\/a><span> from the platform. That is because the attackers that plundered $292 million in crypto from Kelp DAO used the stolen funds to borrow assets from the lending platform.<\/span><\/p>\n<p><span>Allowing borrowing rates to quadruple for USDC might alleviate the crisis, but some members of Aave\u2019s governance forum pushed back against the proposal, <\/span><a href=\"https:\/\/governance.aave.com\/t\/arfc-improve-liquidity-buffer-for-usdc-on-aave-v3-ethereum-core-raise-slope-2-lower-optimal-utilization\/24684\/3\" target=\"_blank\" rel=\"nofollow external noopener\"><span>fearing<\/span><\/a> <a href=\"https:\/\/governance.aave.com\/t\/arfc-improve-liquidity-buffer-for-usdc-on-aave-v3-ethereum-core-raise-slope-2-lower-optimal-utilization\/24684\/11\" target=\"_blank\" rel=\"nofollow external noopener\"><span>changes<\/span><\/a><span> could stoke liquidations among those affected as positions become prohibitively expensive.<\/span><\/p>\n<p><span>Earlier this week, the security council overseeing Arbitrum effectively <\/span><a href=\"https:\/\/decrypt.co\/364981\/arbitrum-security-council-freezes-71-5m-in-ethereum-linked-to-292m-kelpdao-exploit\" target=\"_blank\"><span>froze<\/span><\/a><span> 30,766 Ethereum valued at $71 million, which attackers had moved to the <\/span><a href=\"https:\/\/decrypt.co\/resources\/what-are-layer-2-networks-and-sidechains-ethereum-scaling-explained\" target=\"_blank\"><span>layer-2 scaling network<\/span><\/a><span>, reducing the haircut that Aave users could face if losses from the Kelp DAO exploit are socialized.<\/span><\/p>\n<p><span>DeFi projects like <\/span><a href=\"https:\/\/decrypt.co\/resources\/what-is-lido-finance-ethereums-largest-liquid-staking-project\" target=\"_blank\"><span>Lido<\/span><\/a><span> are also in a position to support Aave. On Thursday, the liquid staking protocol, which allows users to earn rewards without locking their tokens up, received a proposal that floated a one-time contribution of up to 2,500 stETH to a dedicated relief vehicle.<\/span><\/p>\n<p><span>\u201cThe proposal is designed to reduce broader ecosystem spillover and support an orderly resolution for affected users,\u201d Lido <\/span><a href=\"https:\/\/x.com\/LidoFinance\/status\/2047371180781539827?s=20\" target=\"_blank\" rel=\"nofollow external noopener\"><span>said<\/span><\/a><span> in an X post.<\/span><\/p>\n<p><span>On Saturday, attackers <\/span><a href=\"https:\/\/decrypt.co\/364849\/kelp-dao-exploit-aave-liquidity-crunch-6-2-billion-withdrawal-panic\" target=\"_blank\"><span>drained<\/span><\/a><span> 116,000 rsETH from a cross-chain <\/span><a href=\"https:\/\/decrypt.co\/resources\/how-to-bridge-ethereum-layer-2\" target=\"_blank\"><span>bridge<\/span><\/a><span> that allows users to move the token, which is backed by staked Ethereum, from one network to another. Issued by Kelp DAO, rsETH functions as a tradeable \u201creceipt\u201d for the DeFi protocol\u2019s depositors.\u00a0<\/span><\/p>\n<p><span>The bridge was built on infrastructure from interoperability protocol LayerZero, which subsequently <\/span><a href=\"https:\/\/decrypt.co\/364872\/layerzero-pins-292m-kelpdao-bridge-hack-on-north-koreas-lazarus-group\" target=\"_blank\"><span>blamed<\/span><\/a><span> Kelp DAO for relying on what has been described as a single point of failure. Kelp DAO pointed the finger back at LayerZero, <\/span><a href=\"https:\/\/x.com\/KelpDAO\/status\/2046332070277091807?s=20\" target=\"_blank\" rel=\"nofollow external noopener\"><span>arguing<\/span><\/a><span> that only LayerZero\u2019s systems were impacted by the attack, which has since been linked to North Korea\u2019s Lazarus Group.<\/span><\/p>\n<div>\n<h3>Daily Debrief Newsletter<\/h3>\n<p>Start every day with the top news stories right now, plus original features, a podcast, videos and more.<\/p>\n<\/div>\n<\/div>",
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        "rendered": "<p>In brief An economist at USDC issuer Circle proposed an emergency overhaul of Aave\u2019s lending mechanics, advocating for a 50% [&hellip;]<\/p>",
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