Aave has lowered the utilization threshold at which borrowing rates for Tether's USDT rise sharply on its Ethereum Core market, making loans more expensive sooner as pool liquidity tightens.
The change was executed on October 21 in Ethereum block 26,241,799. The threshold fell from 94% utilization to 92%. Borrowers can still go beyond that point, but the rate climbs more sharply once they do.
How the Change Affects Borrowing Costs
Aave's two-slope model increases borrowing rates gradually up to an optimal utilization point, called the kink, then more sharply between that point and full utilization. Lowering the kink moves the more expensive part of the curve earlier.
The deployed USDT parameters set a 92% optimal usage ratio, zero base rate, 4.5% first slope, and 10% second slope. At the kink, the rate stands at 4.5% APR, reaching 14.5% APR at 100% utilization.
At a hypothetical 94% utilization, the previous curve charged 4.5% APR. Under the new curve, that same utilization point incurs 7% APR—a 2.5 percentage point increase. For a constant 1 million USDT loan, this gap would amount to 25,000 USDT of additional simple annual interest if rates and principal remained unchanged for a full year.
Liquidity Buffer Impact
Using supply balance data from an October 20 recommendation by DeFi risk service provider LlamaRisk, the shift corresponds to roughly 57.8 million USDT more modeled unborrowed liquidity at the threshold.
LlamaRisk reported 2,892.2 million USDT supplied in its October 20 assessment. At 94% utilization, 6% would remain unborrowed, equaling 173.53 million USDT. At 92% utilization, 8% would remain unborrowed, equaling 231.38 million USDT. The difference is 57.84 million USDT.
Actual Pool Conditions
On October 23 at block 26,254,517, the reserve held approximately 2.9 billion USDT in outstanding supplier claims and 2.5 billion USDT in variable debt. Physical USDT held at the aToken contract stood at approximately 391.4 million.
The same snapshot recorded a variable borrowing APR of about 4.23% and a supplier liquidity APR of 3.29%, with borrow utilization at approximately 86.45%, below the new 92% threshold.
Withdrawal Conditions Unchanged
The rate change does not guarantee lenders will have cash available for withdrawal. Cash must still be present when a supplier exits. Aave's withdrawal guidance specifies that suppliers can withdraw only against liquidity that is available and unborrowed. Suppliers using deposits as collateral may also need to repay borrowings or add collateral to preserve their position's health before withdrawing.
The higher borrowing rate can improve returns offered to suppliers, helping compensate them for leaving funds in the pool. However, accrued interest is distinct from underlying tokens becoming available for immediate withdrawal.
