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▲ Circle, USDC, Aave/AI Generated Image
The interest rate hike proposal put forth by Circle, the issuer of USDC, to the decentralized finance protocol Aave has met with strong opposition from the community.
According to Cryptopotato on April 23 (local time), Circle's Chief Economist Gordon Liao proposed a significant increase in loan interest rates to address the USDC liquidity shortage in Aave V3's Ethereum core pool. The USDC utilization rate in this pool has reached 99.87% for four consecutive days, indicating a virtual depletion of liquidity. Available liquidity has dropped to less than $3 million, and the total supply has decreased by approximately $60 million over the past 24 hours.
The cause of the liquidity crunch is attributed to large-scale borrowing triggered by the KelpDAO rsETH attack incident on April 18. Following this event, approximately $300 million in additional loans were taken out, and locked-up suppliers began borrowing against USDC collateral to recover their funds. Chief Economist Liao analyzed that the current interest rate ceiling of 14% is insufficient to deter further borrowing or attract new capital.
Liao presented a two-phase interest rate adjustment plan. Phase 1 proposed immediate action to raise the Slope 2 interest rate to 40% and lower the optimal utilization rate to 87%. He then argued that a Phase 2 governance vote should further increase Slope 2 to 50%, bringing the maximum supply interest rate to approximately 48%. Circle CEO Jeremy Allaire also supported the proposal, urging market attention.
Within the Aave community, there has been a flood of criticism regarding Circle's aggressive intervention. Some users pointed out that a specific company's deep involvement in the governance of a decentralized protocol, leading to rapid interest rate fluctuations, goes against market logic. Concerns were also raised that a high interest rate hike could impose an excessive burden on existing borrowers and increase market uncertainty.
Meanwhile, the Aave governance team is reviewing the feasibility of the proposed interest rate hike and gathering community feedback. While there is a consensus on the need for technical measures to restore liquidity, opinions are sharply divided on the methods and speed of implementation. The outcome of this discussion is expected to significantly impact future cooperation models between stablecoin issuers and decentralized finance platforms.
*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*
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