Gordon Liao, Circle’s Chief Economist, submitted a governance proposal on April 22, 2026, calling on Aave to raise USDC borrow rates sharply on its V3 Ethereum Core market after a $292 million exploit against KelpDAO left the pool functionally frozen for four consecutive days.
Key Takeaways:
Circle’s Chief Economist Gordon Liao proposed raising USDC’s Aave V3 Slope 2 rate to 50% to restore liquidity after a KelpDAO exploit. A $292 million KelpDAO rsETH bridge attack on April 18 drained Aave of up to $15.1 billion in TVL within days. Aave’s USDC pool sat at 99.87% utilization for four days, with under $3 million in available liquidity as of April 22. Circle Chief Economist Proposes Higher USDC Rates on Aave V3 to Restore Liquidity After KelpDAO ExploitLiao’s proposal frames the flat post-kink rate as the core problem. Because the current Slope 2 is low, rate-insensitive borrowers treated the roughly 14% cost as a fee to bypass queues rather than a signal to exit. The result was a market that failed to clear even as depositors attempted to withdraw.
AAVE’s token price fell roughly 20% to 26% in the days following the exploit amid the outflow wave. The governance proposal has been interpreted by some market observers as a stabilizing signal.
Aave published an rsETH incident report outlining recovery paths. Discussions about potential bad debt absorption through mechanisms like slashing stkAAVE are ongoing.
Liao’s two-phase approach keeps Slope 1 at 3.5%, the base rate at 0%, and the reserve factor at 10% unchanged. The interim Risk Steward action could take effect the same day if approved, while the full target configuration requires a standard five-to-seven-day governance vote.
