Aave Borrowers Faced Up To 36% APR During Reserve Freezes
Aave borrowers experienced annual percentage rates reaching up to 36% while emergency freezes blocked fresh collateral deposits during an external security incident.
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Borrowers utilizing Aave faced steep annual percentage rates reaching up to 36% while emergency restrictions blocked fresh collateral deposits during an external security incident. The situation highlighted how protective lending market measures can leave existing users dealing with conflicting needs within the same liquidity pool.
The restrictions were introduced following the Oct. 29 Binance hot-wallet incident to limit further protocol use during an external compromise, with affected reserves reopening by Oct. 31. During the freeze, repayments, withdrawals, and liquidations remained enabled, but new supplies and borrowings were prohibited. This meant existing debt continued to accumulate interest while borrowers could not deposit extra collateral into frozen reserves.
Suppliers were still able to request withdrawals as long as tokens were available, which could increase borrowing costs even when new borrowing was halted. When suppliers withdrew tokens while total debt remained constant, the pool utilization increased significantly. Aave's rate formula charges higher fees as utilization rises, pushing annual borrowing rates between 10% and 36% in major stablecoin reserves according to LlamaRisk's account.
Freezing reserves while withdrawals continued caused Aave borrowing rates to spike up to 36% APR.
To address the spike, LlamaRisk recommended temporarily reducing the upper rate response to give borrowers relief before restoring earlier settings once fresh supply became possible. Core USDC was at its 94% threshold where restoring the upper slope produced no immediate change, while base USDC was beyond its threshold and became more expensive. LlamaRisk's published comparisons held each reserve's utilization constant to illustrate the proposed setting changes.
Why it matters
These events demonstrate how protecting a lending protocol during a security compromise can create distinct challenges for borrowers and suppliers relying on the same pool of funds. Borrowers needing to protect positions face rising costs without the ability to deposit extra collateral, while suppliers seeking to withdraw tokens can inadvertently drive utilization higher and make borrowing more expensive for others.