Circle Economist Urges 48% USDC Rate on Aave

Circle chief economist Gordon Liao proposed an emergency increase to Aave’s USDC lending cap to about 48%, saying the change would free roughly $1.86 billion as USDC utilization neared 100%. Liao posted the proposal in Aave’s governance forum and described the post as his personal view. Circle CEO Jeremy Allaire endorsed the suggestion on X.

The funding squeeze began on April 18, 2026, when a hacker used fake rsETH tokens to exploit a flaw in the KelpDAO bridge and borrowed about $292 million in real assets. News of the exploit prompted more than $6 billion in withdrawals from Aave within 24 hours. The protocol’s total value fell from about $25 billion to $17.5 billion, and roughly $1.86 billion of user funds remain frozen and inaccessible.

An X post by account @duonine read: “All core markets are at 100% utilization, which includes $3 billion in USDT and $2 billion in USDC stuck. That means you CANNOT WITHDRAW your money.” High utilization means relevant pools lack spare liquidity for lenders to redeem holdings.

Users whose deposits were frozen took loans against locked collateral and sold those assets to obtain cash, adding roughly $300 million of new borrowing over 72 hours. Some of those users accepted losses of 10% to 25% to regain dollar liquidity.

Aave’s automatic rate system did not correct the imbalance. The borrowing rate for USDC hit a cap near 14% and remained at that ceiling for four days, according to Aavescan data. Supply and outstanding debt fell by about $60 million per day as borrowers repaid and investors withdrew reserves. The algorithmic rate tool, Slope 2 Risk Oracle, stopped functioning after Chaos Labs exited Aave on April 6, leaving no team to maintain it.

Liao’s plan would raise the maximum interest for USDC lenders from roughly 12.6% to about 48%, on the view that higher yields would attract USDC from lower-return venues within hours. He proposed that Aave Labs and risk manager LlamaRisk use a shared control account to draw capital quickly and then hold a community vote in five to seven days to set a final rate. He also recommended pausing the automatic rate-adjustment tool for USDC and using a static setting managed by LlamaRisk while original support is absent.

Aave founder Stani Kulechov posted on X that the team was “working around the clock on multiple paths forward” and reported the Arbitrum Security Council recovered $70 million in ETH tied to the rsETH incident, which could reduce unpaid debt. Community reactions were mixed: some accounts supported the emergency rate idea while others criticized it or proposed that Circle supply USDC directly. Liao wrote that affected users face a choice between a short period of higher rates or continued inability to access funds.

LlamaRisk and Aave Labs must decide whether to implement the emergency rate increase, pursue another intervention, or wait for other remedies. Until a change is enacted, affected users are likely to remain unable to withdraw their funds.