Aave lowered the utilization threshold at which USDT borrowing rates rise sharply on its Ethereum Core market, from 94% to 92%. Loans get more expensive sooner as liquidity tightens, but the change adds no cash to the pool.
Aave has lowered the utilization threshold at which borrowing rates for Tether's USDT rise sharply on its Ethereum Core market. The change was executed on Oct. 21, and the threshold fell from 94% utilization to 92%.
Borrowers can still go beyond that point, but the rate climbs more sharply once they do. Lenders get earlier pressure on borrowers to preserve withdrawal headroom.
Steeper rates above the new kink
Aave's two-slope model raises borrowing rates gradually up to an optimal utilization point, often called the kink, then more sharply toward full utilization. The deployed USDT parameters at the Oct. 23 block were a 92% optimal usage ratio, a zero base rate, a 4.5% first slope, and a 10% second slope.
At a hypothetical 94% utilization, the published prior curve charges 4.5% APR. The new curve gives 7% at the same utilization, a conditional comparison that is separate from the observed 4.23% borrowing APR on Oct. 23.
A modeled buffer is not cash
LlamaRisk reported 2,892.2 million USDT supplied in its Oct. 20 recommendation. On that supply, the shift corresponds to roughly 57.8 million USDT more modeled unborrowed liquidity at the threshold, but the buffer creates no cash.
For the larger buffer to appear as actual cash, users must respond through the pool's cash flows. A borrower may repay, a supplier may add USDT for the higher rate, and others may accept the cost or withdraw first.
At an Oct. 23 snapshot, the reserve had about 2.9 billion USDT in supplier claims, 2.5 billion USDT in variable debt and approximately 391.4 million USDT in physical cash. Borrow utilization stood at about 86.45%, below the new 92% threshold. That later observation does not establish a causal effect of the rate change on deposits, repayments, or withdrawals.
Withdrawals still depend on available liquidity
Suppliers can withdraw only against liquidity that is available and unborrowed. A supplier using deposits as collateral may also need to repay borrowings or add collateral before withdrawing.
Moving the kink to 92% makes the price respond earlier to tighter liquidity. Whether suppliers can exit immediately still depends on the cash left in the pool.
Source: CryptoSlate
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