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

LlamaRisk has proposed increasing borrowing costs for Ethena’s USDe across five Aave V3 markets, tightening the economics for positions that borrow the stablecoin and recycle it into yield-bearing sUSDe.The Sept. 9 recommendation would increase USDe’s base variable borrow rate from 5% to 6% on Core, Plasma, Monad, Mantle, and Avalanche. It would also reduce Slope1 by one percentage point on every deployment.At the utilization levels captured in the proposal, modeled borrower APRs would rise by 13 to 89 basis points across markets holding about $323.8 million of USDe debt against $1.18 billion supplied.Aave V3 marketUtilizationCurrent borrow APRProposed borrow APRIncreaseCore32.3%5.72%6.36%64 bpsPlasma22.4%5.79%6.53%74 bpsMonad17.2%5.57%6.38%81 bpsMantle9.0%5.32%6.21%89 bpsAvalanche69.9%6.75%6.87%13 bpsInfographic compares projected Aave USDe borrowing rates across Core, Plasma, Monad, Mantle and Avalanche after proposed base-rate and Slope1 changes.LlamaRisk framed the changes as recommendations and said they would be implemented through the Risk Steward process.The increase is not uniform because the proposal changes two parts of the rate curve at once. The higher base pushes borr...