Aave Lowers Tether USDt Borrowing Rate Threshold to 92%

Aave lowered the point where borrowing rates steepen for Tether USDt (USDT) on its Ethereum Core market from 94% to 92% on Oct. 21, following an Oct. 20 recommendation from LlamaRisk.

The recommendation, dated Oct. 20, would move the threshold from 94% to 92%. It would leave the base rate and both rate-curve slopes unchanged, putting the modeled rate at 4.50% at the new threshold and 14.50% at full utilization. The change took effect on Oct. 21.

At 85.6% utilization in the Oct. 20 market snapshot, the proposed curve would raise the modeled variable borrowing annual percentage rate (APR) from 4.10% to 4.19%, a 0.09-percentage-point increase. The snapshot showed 2,892.2 million USDT supplied and 2,475.1 million borrowed.

The 7% APR figure describes a different scenario: modeled borrowing at 94% utilization under the proposed curve. At that same utilization, the prior curve would produce a 4.50% APR. Neither figure means borrowers generally began paying 7%; the comparison is conditional on utilization reaching 94%.

Holding supply at 2,892.2 million USDT, the model estimates 231.4 million USDT would be unborrowed at 92% utilization, compared with 173.5 million at 94%. It puts borrowing headroom before reaching the threshold at 185.7 million USDT under the proposal, down from 243.5 million under the prior threshold.

LlamaRisk described the shift as converting borrowing capacity into withdrawal liquidity, saying, “Moving it down by two percentage points converts borrow capacity into exit liquidity.” The modeled 57.8 million USDT difference does not add funds to the market or guarantee that suppliers can withdraw that amount.

Withdrawals depend on enough USDT being unborrowed in the market. A supplier who has used deposits as collateral may also see a withdrawal affect the health of a borrowing position.