Aave Stablecoin Yields Mask Limited Cash Withdrawal Options

Aave's USDT0 stablecoin lending pool on the Monad network displayed a 6.10% annual percentage rate over the weekend, but only about $4.4 million of its $55.9 million supplied balance was unborrowed.

This meant that lenders who wanted to withdraw large amounts of cash would face difficulties due to the limited availability of stablecoins in the reserve.

The situation is a result of how lending pools work, where suppliers removing tokens while loans remain outstanding lead to a greater share of the remaining pool being borrowed.

Aave's interest-rate model uses one slope below the optimal utilization point and another above it. As the reserve approaches full utilization, the curve makes borrowing more expensive.