An economist at Circle has proposed raising borrowing rates on Aave to as high as 50% to address a liquidity crisis trapping user funds.
The proposal follows heavy borrowing activity linked to the KelpDAO exploit, which drained hundreds of millions and pushed Aave’s USDC utilisation rate to nearly 100%.
Making Aave an “irresistible destination” for capital should help restore liquidity and allow users to withdraw funds, said Gordon Liao.
The plan would significantly increase the current borrowing cap of 14% while lowering the optimal utilisation rate to 85%, encouraging repayments and creating a buffer for withdrawals.
However, some community members on Aave’s governance forum warned that sharply higher borrowing costs could trigger forced liquidations as positions become too expensive to maintain.
The proposal comes amid broader efforts to stabilise decentralised finance after the exploit, including intervention by Arbitrum to freeze funds linked to the attacker and limit losses across the ecosystem.
Separately, Lido is considering a proposal to contribute up to 2,500 stETH to a relief fund aimed at supporting affected Aave users and containing wider market fallout.
At the time of reporting, Aave price was $94.94.