[ARFC] Chaos Labs Risk Stewards - Decrease Slope1 Parameter for Stablecoins on Aave V3 - 01.29.25

[ChaosLabs]

Overview

In light of recent market changes, Chaos Labs recommends setting the target borrow rate for all stablecoins to 9.50%. These changes will be implemented via the direct-to-AIP process.

Motivation

The utilization for stablecoins across Aave has continued to fall, calling for a further reduction in target rates to better align utilization. The chart below shows the average stablecoin utilization on Aave, weighted by the amount of total borrows of each asset.

Utilization across the largest markets remains relatively low; the same has held true on all deployments, with none registering an average weighted utilization above 80%.

As a result, we recommend setting the target rate for all stablecoins to 9.50%; bridged stablecoins on networks where native versions are available should be set to 10.50%. Please note that GHO, USDS, pyUSD, and bridged versions of USDC are managed separately and, thus, are not included in these recommendations.

Specification

Protocol	Instance	Asset	Current Slope1	Rec. Slope1
Aave V3	Ethereum Core	USDC	11.50%	9.50%
Aave V3	Ethereum Core	DAI	11.50%	9.50%
Aave V3	Ethereum Core	USDT	11.50%	9.50%
Aave V3	Ethereum Core	LUSD	11.50%	9.50%
Aave V3	Ethereum Core	FRAX	11.50%	9.50%
Aave V3	Ethereum Core	crvUSD	11.50%	9.50%
Aave V3	Ethereum Core	USDe	11.50%	9.50%
Aave V3	Ethereum Prime	USDC	11.50%	9.50%
Aave V3	Ethereum EtherFi	USDC	12.50%	9.50%
Aave V3	Ethereum EtherFi	FRAX	12.50%	9.50%
Aave V3	Arbitrum	DAI	11.50%	9.50%
Aave V3	Arbitrum	USDT	11.50%	9.50%
Aave V3	Arbitrum	LUSD	11.50%	9.50%
Aave V3	Arbitrum	USDC	11.50%	9.50%
Aave V3	Arbitrum	FRAX	11.50%	9.50%
Aave V3	Optimism	DAI	11.50%	9.50%
Aave V3	Optimism	USDT	11.50%	9.50%
Aave V3	Optimism	sUSD	11.50%	9.50%
Aave V3	Optimism	LUSD	11.50%	9.50%
Aave V3	Optimism	USDC	11.50%	9.50%
Aave V3	Polygon	DAI	11.50%	9.50%
Aave V3	Polygon	USDT	11.50%	9.50%
Aave V3	Polygon	EURS	11.50%	9.50%
Aave V3	Polygon	USDC	11.50%	9.50%
Aave V3	Base	USDC	11.50%	9.50%
Aave V3	Metis	m.DAI	12.50%	9.50%
Aave V3	Metis	m.USDC	12.50%	9.50%
Aave V3	Metis	m.USDT	12.50%	9.50%
Aave V3	Avalanche	USDC	12.00%	9.50%
Aave V3	Avalanche	USDt	12.00%	9.50%
Aave V3	Avalanche	FRAX	12.00%	9.50%
Aave V3	Avalanche	AUSD	5.50%	9.50%
Aave V3	Gnosis	WXDAI	11.50%	9.50%
Aave V3	Gnosis	EURe	11.50%	9.50%
Aave V3	Gnosis	USDC.e	12.00%	9.50%
Aave V3	BNB	USDC	11.50%	9.50%
Aave V3	BNB	USDT	11.50%	9.50%
Aave V3	BNB	FDUSD	11.50%	9.50%
Aave V3	Scroll	USDC	11.50%	9.50%
Aave V3	ZkSync	USDC	11.50%	9.50%
Aave V3	ZkSync	USDT	11.50%	9.50%

Next Steps

We propose making these updates via the direct-to-AIP process.

Disclosure

Chaos Labs has not been compensated by any third party for publishing this.

Copyright

Copyright and related rights waived via CC0.

[jayway]

The recent proposal to reduce the slope1 parameter for stablecoins on Aave v3 by 0.5% is a step in the right direction, but I believe a more significant reduction is necessary.

I am not an Aave holder, but I am an active user of the protocol. I use Aave for a CDP, which is financing my apartment. So what I want to see in a borrow protocol is a stable long term commitment. I hope that even though I don’t hold stake in Aave / governance, I hope I will be heard here. Especially because I am an actual user, with a real world application, which was supposed to be cheaper and more comfortable, compared to taking a loan at a bank for example.

In the last increase the slope1 parameter was increased from 5.5% to 9.5% - with the goals of smoothing out the borrow rates (which admittedly worked) and increasing protocol revenue (which definitely worked) - but as a user I cant overlook the fact that the cost of my CDP just doubled.

To put it even more drastic, in the last proposal the governance participators decided “Lets just double the interest rate on BILLIONS in outstanding loans and see what happens” It feels short sighted, and also like the main goal here was just to increase protocol revenue.

1. Utilization rate decline

Before the increase, stablecoin utilization rates hovered around 90% (optimal utilization). After the change, utilization dropped below 70%, which suggests that many borrowers were priced out or found better alternatives. A lower utilization rate means idle liquidity, which contradicts the goal of capital efficiency.

2. Revenue vs. Borrower Cost

While the protocol still generates more revenue at a 10% borrow rate on ~$2B than it did at 5% on ~$2.5B, this comes at a cost: Rates discourage borrowing and long-term stability. Reduced borrowing demand leads to a decline in overall protocol activity.

3. Justification for a Larger Reduction

The 0.5% reduction in slope1 is a minor correction that may not be enough to restore healthy utilization. The clear demand contraction caused by the previous increase, a stronger adjustment would be more effective in improving utilization while maintaining rate stability.

Proposal Suggestion

Rather than reducing slope1 by just 0.5%, I suggest a larger reduction—potentially to 7-8%—to encourage utilization recovery while maintaining predictable rate behaviour. The current proposal is a move in the right direction, but a more decisive adjustment would yield greater benefits for both borrowers and the protocol.

To be very clear; I see the obvious interest conflict here - Aave holders / governance participators are interested in increasing protocol revenue. Me on the other hand, I’m interested in long term cheap borrow rates, without many changes to the whole system.

Would love to hear thoughts from the community on a more meaningful reduction.

edit1: changed wrong number of outstanding total loan value to a more general phrase