Aave Ethereum Frozen Amid USDC Liquidity Crisis; Circle Proposes Emergency Rate Hike to 48%

Gate News message, April 23 — Aave's Ethereum platform has been frozen for nearly four days as USDC utilization reached 99%, locking approximately $1.86 billion in user funds. Circle's chief economist, Gordon Liao, has proposed an emergency governance intervention to address the crisis, marking a rare direct involvement by Circle in third-party protocol governance.

The crisis originated on April 18 when a hacker exploited a flaw in KelpDAO's bridge to borrow approximately $292 million in real assets using fake rsETH tokens. The exploit triggered a massive withdrawal event, with over $6 billion fleeing Aave within 24 hours—the largest single-day outflow in the protocol's history. Aave's total value dropped from $25 billion to approximately $17.5 billion. Users unable to withdraw quickly found their funds frozen, and some took emergency loans against their locked deposits at 10-25% losses to access liquidity.

Aave's current USDC borrowing rate cap of 14% has failed to rebalance supply and demand. The automatic rate-adjustment tool, Slope 2 Risk Oracle, malfunctioned after Chaos Labs exited Aave on April 6 due to misunderstandings, leaving no team to maintain it. Liao proposes raising the maximum USDC lending rate from approximately 12.6% to 48% and pausing the automatic adjustment tool in favor of manual control by LlamaRisk. According to Liao, higher yields would attract capital inflows within hours.

Aave founder Stani Kulechov stated the team is working on multiple recovery paths, noting that the Arbitrum Security Council recovered $70 million in ETH during the rsETH incident. Community responses to Circle's proposal have been mixed, with some supporting the rate increase while others argue it penalizes trapped users and suggest Circle should directly supply $1 billion in USDC instead.