Aave Faces Liquidity Crisis as Circle Economist Proposes Emergency USDC Rate Overhaul

[johnblockbuster]

A major liquidity squeeze has hit Aave on Ethereum after USD Coin (USDC) utilization surged to near-max levels, leaving less than $3 million in available liquidity. The strain follows a rapid borrowing spike tied to the April 18 KelpDAO exploit, which triggered roughly $300 million in additional borrowing demand across the protocol.

According to Circle Chief Economist Gordon Liao, trapped liquidity and rate-insensitive borrowing have left the system unable to naturally rebalance. As a result, USDC suppliers began borrowing against their own deposits to exit positions through decentralized exchanges, further tightening available liquidity in a feedback loop.

Circle CEO Jeremy Allaire publicly endorsed the proposed changes, signaling growing alignment around emergency governance action to stabilize conditions.

[kevin1]

usdc supply: almost empty. borrowers: “perfect time to borrow more”