Aave Rate Cut Plan Offers Uneven Relief After Market Freeze

Aave risk provider LlamaRisk proposed temporary interest-rate cuts on 30th October 2026 after emergency restrictions stopped new deposits and borrowing across much of the lending protocol. Its published figures show that the relief would differ even between borrowers in the same market.

In Aave V3's Ethereum Core market, the proposal projected the USDC stablecoin's annualised borrowing rate falling from 10.8% to 8.0%. The equivalent rates for USDT and DAI stayed at 4.5% and 5.0%. These are comparisons at LlamaRisk's 00:26 UTC snapshot on 30th October, rather than current quotes or savings already delivered.

The difference comes from where each reserve sat on its interest-rate curve. USDC utilisation, the proportion of liquidity already borrowed, was 97.8%, above the point where its rate starts climbing more steeply. USDT and DAI were just below their equivalent thresholds.

LlamaRisk proposed reducing Slope2, the steeper part of that curve, while leaving the base rate, lower slope and threshold unchanged. Consequently, loans below the threshold would keep the same quoted rate at that snapshot, even though their potential rate at full utilisation would fall.

Withdrawals Continue While New Supply Stops

LlamaRisk's incident report says guardian signers froze 175 V3 reserves across 16 networks and 117 V4 reserves across four networks on 29th October. It said the action followed borrowing by a wallet linked to the Binance hot wallet incident. Decrypt independently reported that borrowing and the subsequent freeze.

The restrictions block new deposits and loans in frozen reserves, while repayments, withdrawals and liquidations continue. Existing borrowers cannot add collateral to those reserves. LlamaRisk said supplier withdrawals had increased utilisation and borrowing rates while the usual route for fresh deposits remained closed.

Its rate proposal sought to reduce the resulting pressure on existing debt. Aave's documentation explains that accrued interest can lower a position's health factor, the measure of how close it is to liquidation.

The proposal's stated 10% annual rate target at full utilisation would not apply uniformly in its own tables. The projected maximum for V3 Core DAI remained 20%, while Core USDtb remained 34%. V4 borrowers can also pay a collateral-related surcharge above the shared borrowing rate, according to the same Aave documentation.

LlamaRisk, which discloses partial funding from the Aave DAO, said it would implement changes through the relevant risk stewards and signers. Its incident report left Horizon open because its collateral requires permission to hold. The proposed rate changes nevertheless include Horizon's RLUSD market, where withdrawals had also increased borrowing costs.