Aave V4's Arc Market Flooding with Idle Liquidity
Aave V4's Arc market on the Layer-1 network has seen an influx of USDC liquidity since its launch on September 16, but surprisingly, very little of it is being borrowed. According to Aavescan data, around $76 million in USDC was supplied by suppliers who quickly filled the initial capacity of the Main Spoke's add cap, which was set at 56 million tokens.
However, despite the significant supply of liquidity, borrowers have been slow to take advantage of it. As of September 17, less than $100,000 in USDC had been borrowed, leaving utilization at a mere 0.1%. This has led LlamaRisk to propose an increase in the add cap from 56 million to 150 million tokens.
Aave V4's interest-rate framework prices hub liquidity according to utilization, which explains why the base rates remain low despite the abundance of liquidity. The current supply and borrow APRs are both at 0.00%, indicating that little capital is being borrowed and therefore, liquidity remains abundant.