Circle economist pushes for 50% USDC borrow rate on Aave after rsETH shock

Circle chief economist Gordon Liao has proposed steepening Aave v3’s USDC interest-rate curve—raising the Slope 2 borrow-rate ceiling toward 40–50% and lowering optimal utilization—to break a near-100% utilization liquidity squeeze after the KelpDAO rsETH exploit. The plan aims to attract rapid USDC inflows and reopen withdrawals by making lending yields sharply higher at extreme utilization. Market participants warn the move could trigger more liquidations for leveraged borrowers and create DeFi spillovers, since Aave’s USDC/USDT pools feed institutional reference rates. The proposal could restore short-term liquidity but risks amplifying borrower stress and systemic contagion during the unwind.