Aave and Compound Users Are Paying More Than 20% For Stablecoin Loans

The interest rates for borrowing major stablecoins on Aave, the largest DeFi money market protocol, have ballooned to more than 20%, indicating that speculators are highly leveraged despite markets posting a slight pullback.

Aave data shows the annual percentage yield (APY) paid on deposits to the platform in the form of Tether (USDT) and USD Coin (USDC) peaking at 17.6% and 24.6% on Dec. 3, while borrowers paid a peak of 23% and 28.14% to maintain loans on the platform.

At the time of writing, users have borrowed $2.21 billion or 93.6% of the $2.36 billion in USDT supplied to Aave, while $1.85 billion or 94.4% of the $1.98 billion USDC supplied is currently loaned out to users. The high utilization rates have pushed USDT rates to their highest level in 12 months, while USDC rates are at their highest level in more than one year.

Smaller stablecoins are also at high utilization ratios on Aave. Users have borrowed 92.5% of the $297.5 million in Sky (formerly MakerDAO)’s USDS token supplied to Aave, while 84% of the $10.8 million in PayPal USD is lent out, and 73.3% of the $21.4 million in USDe is outstanding as loans.

On Dec. 2, the APY paid on USDT and USDC also surged to 28.1% and 38.4%, according to Colin Wu, a blockchain reporter.

Users are similarly paying 19.6% and 20.7% to access USDT and USDC using Compound Finance, the fourth-largest money market protocol.

Rates are lower on the second and third-ranked lending protocols JustLend and Spark, with users paying 5% to borrow USDT from JustLend, and 9.5% to borrow USDS using Spark.

The soaring stablecoin utilization shows that many investors are leveraged despite the markets pulling back from local highs.

Bitcoin continues to consolidate in the mid-$90,000 range, last changing hands for nearly $95,400 after tagging an all-time high of $99,645 on Nov. 22.

Ethereum is at $3,613 after posting a local high of roughly $3,730 yesterday, while Solana is trading for $255.6 after reaching new heights of $263.2 on Nov. 23, and XRP is sitting at $2.63 after reaching a local high of $2.77 yesterday.