Aave makes USDT loans pricier sooner with a 92% rate kink

Aave has made borrowing Tether's USDT more expensive sooner on its main Ethereum market, lowering the point where rates start to climb steeply from 94% to 92% utilization. The change went live on 21 October in Ethereum block 26,241,799, CryptoSlate reports, following a 20 October recommendation from risk provider LlamaRisk.

How Aave's rate curve works

Aave sets borrowing rates by utilization, the share of a pool's deposits that has been lent out. Rates rise gently until an "optimal" level, often called the kink, and then rise sharply. That steep section exists to stop pools from being fully borrowed, because lenders can only withdraw cash that is not lent out. If DeFi lending is new to you, start with our explainer on what DeFi is.

What changed

• Kink: lowered from 94% to 92% utilization for USDT on the Ethereum Core market.
• Curve settings at 23 October: zero base rate, a 4.5% first slope and a 10% second slope, so borrowing costs 4.5% APR at the kink and 14.5% at 100% utilization.
• Same-utilization comparison: at a hypothetical 94% utilization, the old curve charged 4.5% while the new one implies about 7% APR. The actual borrow rate observed on 23 October was 4.23%, because the pool was below the kink.

Why it matters

For lenders, the change aims at a bigger buffer of idle cash. Using the 2.89 billion USDT supplied in LlamaRisk's recommendation, moving from 94% to 92% means about 57.8 million USDT more left unborrowed at the threshold. That buffer is a target, not new money: borrowers can still go above 92% if they are willing to pay the higher rate, and withdrawals still depend on how much cash is actually in the pool. LlamaRisk said about 417 million USDT was idle when it made its recommendation.

For borrowers, loans become costlier earlier when demand spikes. It is the latest tweak to Aave's risk settings after its Umbrella stablecoin backstops shrank by about $12 million. Before you lend stablecoins in DeFi, read how stablecoins work and what can go wrong.