TL;DR:
- Circle intervened in Aave’s governance forum to propose an emergency solution to a liquidity crisis that lasted more than four days.
- The $292 million hack of KelpDAO triggered a bank run that drained over $6 billion from Aave in less than 24 hours.
- Circle’s proposal calls for raising the maximum USDC lending rate from 14% to 50% to attract new liquidity to the protocol.
Circle intervened directly in Aave‘s governance forum with an emergency proposal to resolve a liquidity crisis that kept the platform paralyzed for more than four consecutive days. Gordon Liao, the company’s chief economist, published the plan, although the public backing of CEO Jeremy Allaire gave it immediate institutional weight.
The origin of the crisis dates back to April 18, 2026, when an attacker used fake rsETH tokens to exploit a vulnerability in KelpDAO‘s bridge and extract approximately $292 million in real assets. The news triggered a massive bank run: in less than 24 hours, more than $6 billion left Aave, reducing the protocol’s total value from $25 billion to around $17.5 billion in a single day. Funds that could not be withdrawn in time became trapped, with around $2 billion in USDC and $3 billion in USDT frozen in markets at 100% utilization.
Circle Proposes Emergency Rates to Unlock the Market
The situation worsened because the automatic rate adjustment system, Slope 2 Risk Oracle, developed by Chaos Labs, was left without maintenance after that firm exited the Aave ecosystem on April 6, 2026. The USDC lending rate remained frozen at around 14%, a level insufficient to attract new liquidity or incentivize borrowers to repay. Many trapped users took out loans against their locked deposits and sold those assets, accepting losses of between 10% and 25% in order to recover liquidity in dollars, which generated an additional $300 million in debt for the system within 72 hours.
Circle proposes that Aave raise the maximum rate a USDC provider can receive from 12.6% to 48%, arguing that the incentives would attract capital from lower-yield platforms within hours. The plan calls for LlamaRisk and Aave Labs to use a shared control account to act immediately and then submit the measure to a community vote within five to seven days.
The Internal Debate that Will Define Aave’s Future
The community received Circle’s proposal in a divided manner. Some users considered that raising rates would penalize those who can no longer withdraw their funds and must pay interest on emergency loans. Liao responded that the alternative is keeping them locked indefinitely at low rates, which does not represent a solution but a postponement. Aave founder Stani Kulechov confirmed that the team is working on multiple fronts and mentioned that the Arbitrum Security Council recovered $70 million in ETH linked to the rsETH incident, which could reduce part of the outstanding debt. The final decision rests with LlamaRisk and Aave Labs.
