Aave Rate Hike Threatens Ethena USDe Yield Loops

Risk assessment firm LlamaRisk recently proposed raising borrowing costs for Ethena's USDe stablecoin across five different Aave V3 markets. The recommendation suggests increasing the base variable borrow rate from five percent to six percent on markets including Core, Plasma, Monad, Mantle, and Avalanche. If approved, modeled borrower annual percentage rates would climb by 13 to 89 basis points across these deployments, which currently hold about $323.8 million in USDe debt.

This adjustment specifically targets a popular trading strategy where users borrow USDe on Aave and immediately recycle it into staked sUSDe to capture the yield spread. Analysts note that borrow rates in several of these markets have already climbed above the supply percentage rate for sUSDe. This means simple borrow and stake loops currently operate with negative carry before factoring in transaction fees and other costs.

Supporters of the rate adjustment argue that a higher borrowing floor will cool down these leveraged strategies and potentially push yields higher for remaining sUSDe holders as positions unwind. Traders and liquidity providers should monitor Aave governance updates closely to see how quickly these rate changes take effect and how the broader market responds to the shifting economics of stablecoin recycling.