Rising Aave borrow rates threaten to flip Ethena’s USDe yield loops into negative carry

LlamaRisk has submitted a recommendation to raise borrowing costs for Ethena’s USDe stablecoin on five Aave V3 markets. The proposal, dated September 9, would lift the base variable borrow rate from 5 % to 6 % on the Core, Plasma, Monad, Mantle and Avalanche reserves, while also lowering the first slope (Slope1) by one percentage point on each market.

Impact on borrower APRs

Using the utilization levels captured in the proposal, the modeled annual percentage rates (APRs) for borrowers would increase by between 13 and 89 basis points. The affected markets hold roughly $323.8 million of USDe debt against $1.18 billion of supplied assets.

• Core (32.3 % utilization): APR rises from 5.72 % to 6.36 % (+64 bps)
• Plasma (22.4 %): APR rises from 5.79 % to 6.53 % (+74 bps)
• Monad (17.2 %): APR rises from 5.57 % to 6.38 % (+81 bps)
• Mantle (9.0 %): APR rises from 5.32 % to 6.21 % (+89 bps)
• Avalanche (69.9 %): APR rises from 6.75 % to 6.87 % (+13 bps)

Why the rates differ

The proposal changes two components of Aave’s interest‑rate curve simultaneously. Raising the base rate pushes borrowing costs up across the board, while reducing Slope1 dampens the increase at higher utilization levels. Consequently, the heavily utilized Avalanche market sees only a modest 13‑basis‑point rise, whereas the low‑utilization Mantle market absorbs almost the full base‑rate increase.

Potential effect on Ethena’s yield loops

Ethena encourages users to borrow USDe, convert it into the yield‑bearing token sUSDe, and capture the spread between staking rewards and borrowing costs. A higher borrowing floor is intended to curb these leveraged loops and could allow the remaining sUSDe supply to achieve yields near 5.3 % as loop‑funded supply contracts.

As of September 10, Aavescan reported a 4.72 % APY for sUSDe supply. Borrow APRs on Core, Plasma, Monad, Mantle and Avalanche already exceed this level, meaning a simple borrow‑and‑stake loop would generate negative carry before accounting for incentives, transaction fees, or other frictions.

Implementation notes

LlamaRisk framed the changes as recommendations to be enacted through Aave’s Risk Steward process. The quoted APR figures reflect the snapshot conditions on September 9 and may vary as market utilization shifts.