Circle Chief Economist Proposes Raising USDC Rates on Aave Amid KelpDAO Fallout

Gate News message, April 23 — Gordon Liao, Circle’s chief economist, has proposed raising USDC lending parameters on Aave v3 Ethereum Core this week following a $292 million KelpDAO rsETH exploit that triggered a liquidity crisis across the protocol. Liao’s Request for Comment suggests increasing “Slope 2” to 40%, with a 50% target, and lowering optimal utilization to attract fresh deposits and relieve market stress.

The proposal stems from acute pressure on Aave’s USDC pool, which has remained essentially pinned at full utilization for four days. At the current rate of roughly 14%, Liao argues, repayments are absorbed almost entirely by queued withdrawals rather than restoring usable liquidity. The KelpDAO incident has cascaded across DeFi markets, causing Aave’s total value locked to plummet from above $45 billion before the exploit to roughly $15.3 billion, with steep withdrawals and persistent utilization pressure across core markets.

Community feedback on Aave’s governance forum has quickly raised liquidation concerns. Analysis shared in response to the proposal found that the target rate curve could push approximately $70.1 million of material debt closer to liquidation over 30 days, with one large wallet accounting for most of the exposure. Critics argue that steeper rates would shift pain from lenders stuck in withdrawal queues to borrowers operating with thin health-factor cushions. Additionally, some community members have questioned why Circle, as USDC’s issuer, is pursuing governance-based solutions rather than providing direct liquidity support. Liao noted that his post reflects “personal views only, not representing those of Circle.”

Meanwhile, onchain analyst EmberCN reports that the KelpDAO attacker has swapped nearly all 75,700 ETH still under its control—approximately $175 million—into bitcoin over roughly a day and a half, primarily through THORChain. The activity generated roughly $800 million in THORChain trading volume and approximately $910,000 in fees.