Overview
In light of recent market changes, Chaos Labs recommends decreasing the Slope 1 parameter for stablecoins by 0.5 percentage points. These changes will be implemented through the risk steward process.
Motivation
Stablecoin utilization on Aave has leveled off and begun to rise after the interest rate curve adjustments made between March 8 and March 19, 2025, which lowered the target rate from 9.5% to 6.5%.
As shown in the chart below, stablecoin utilization is displayed for each Aave instance, with the lines weighted by total borrows in each deployment.
To provide additional context to the utilization trends, the evolution of stablecoin supply and borrowing relative to the borrow rate and Slope 1 on the Ethereum Core instance has been examined since the start of the year.
The data illustrates that the primary driver behind the decline in stablecoin utilization was a reduction in borrowing activity — from around $5 billion in early January to a low of $3.6 billion on March 12, marking a 28% drop.
In contrast, stablecoin supply remained relatively stable, hovering around $7 billion throughout the period.
Following the interest rate curve adjustments, borrowing activity began to rebound, leading to a subsequent increase in utilization.
When examining the root causes behind the decline in demand for stablecoin borrowing since the beginning of the year, the primary driver appears to be the overall market slowdown. This has led to a drop in funding rates and, in turn, a decrease in sUSDe yields. As sUSDe yields declined, the appetite for borrowing stablecoins against sUSDe to magnify those yields also diminished.
At the start of the year, the sUSDe supply stood at around $1.1 billion, but it has since fallen to approximately $300 million.
Consequently, there has been a significant decline in the use of sUSDe as collateral for stablecoin borrowing. The amount of sUSDe deployed to borrow USDC and USDT has dropped from $800 million to $200 million combined. This illustrates the impact of falling market funding rates on borrowing activity within Aave.
Across chains, borrowing rates have stabilized between 4.5% and 5%. A 0.5 percentage point reduction would help align the target borrow rate with market-priced interest rates and improve the competitiveness of Aave markets, especially given that current utilization rates still remain significantly below the optimal level. To optimize protocol welfare, the proposal aims to stimulate and attract demand by lowering Slope 1.
As a result, we recommend decreasing the target rate for all native stablecoins by 0.5 percentage points.
Please note that GHO, USDS, pyUSD, and bridged stablecoin versions are to be managed separately and are not included in these recommendations. Additionally, after syncing with Growth SPs, we will refrain from performing changes to the Polygon Instance.
Specification
| Protocol | Instance | Asset | Current Slope1 | Rec. Slope1 |
|---|---|---|---|---|
| Aave V3 | Ethereum Core | USDC | 6.50% | 6.00% |
| Aave V3 | Ethereum Core | DAI | 6.50% | 6.00% |
| Aave V3 | Ethereum Core | USDT | 6.50% | 6.00% |
| Aave V3 | Ethereum Core | LUSD | 6.50% | 6.00% |
| Aave V3 | Ethereum Core | FRAX | 6.50% | 6.00% |
| Aave V3 | Ethereum Core | crvUSD | 6.50% | 6.00% |
| Aave V3 | Ethereum Core | USDe | 6.50% | 6.00% |
| Aave V3 | Ethereum Prime | USDC | 6.50% | 6.00% |
| Aave V3 | Ethereum EtherFi | USDC | 6.50% | 6.00% |
| Aave V3 | Ethereum EtherFi | FRAX | 6.50% | 6.00% |
| Aave V3 | Arbitrum | DAI | 6.50% | 6.00% |
| Aave V3 | Arbitrum | USDT | 6.50% | 6.00% |
| Aave V3 | Arbitrum | LUSD | 6.50% | 6.00% |
| Aave V3 | Arbitrum | USDC | 6.50% | 6.00% |
| Aave V3 | Arbitrum | FRAX | 6.50% | 6.00% |
| Aave V3 | Optimism | DAI | 6.50% | 6.00% |
| Aave V3 | Optimism | USDT | 6.50% | 6.00% |
| Aave V3 | Optimism | sUSD | 6.50% | 6.00% |
| Aave V3 | Optimism | LUSD | 6.50% | 6.00% |
| Aave V3 | Optimism | USDC | 6.50% | 6.00% |
| Aave V3 | Base | USDC | 6.50% | 6.00% |
| Aave V3 | Metis | m.DAI | 6.50% | 6.00% |
| Aave V3 | Metis | m.USDC | 6.50% | 6.00% |
| Aave V3 | Metis | m.USDT | 6.50% | 6.00% |
| Aave V3 | Avalanche | DAI.e | 6.50% | 6.00% |
| Aave V3 | Avalanche | USDC | 6.50% | 6.00% |
| Aave V3 | Avalanche | USDt | 6.50% | 6.00% |
| Aave V3 | Avalanche | FRAX | 6.50% | 6.00% |
| Aave V3 | Avalanche | AUSD | 6.50% | 6.00% |
| Aave V3 | Gnosis | WXDAI | 6.50% | 6.00% |
| Aave V3 | Gnosis | EURe | 6.50% | 6.00% |
| Aave V3 | Gnosis | USDC.e | 6.50% | 6.00% |
| Aave V3 | BNB | USDC | 6.50% | 6.00% |
| Aave V3 | BNB | USDT | 6.50% | 6.00% |
| Aave V3 | BNB | FDUSD | 6.50% | 6.00% |
| Aave V3 | Scroll | USDC | 6.50% | 6.00% |
| Aave V3 | ZkSync | USDC | 6.50% | 6.00% |
| Aave V3 | ZkSync | USDT | 6.50% | 6.00% |
| Aave V3 | Sonic | USDC.e | 9.50% | 9.00% |
| Aave V3 | Celo | USD₮ | 7.50% | 7.00% |
| Aave V3 | Celo | USDC | 7.50% | 7.00% |
| Aave V3 | Celo | cUSD | 7.50% | 7.00% |
| Aave V3 | Celo | cEUR | 7.50% | 7.00% |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
Disclosure
Chaos Labs has not been compensated by any third party for publishing this.
Copyright
Copyright and related rights waived via CC0.