Circle's Chief Economist, Gordon Liao, has proposed significant changes to Aave's USD Coin (USDC) interest rate model to address a liquidity crisis on Ethereum. The proposal, endorsed by Circle CEO Jeremy Allaire, aims to restore liquidity after USDC utilization on Aave v3 Ethereum Core reached 99.87% for four consecutive days. This situation arose following the KelpDAO rsETH exploit, which led to $300 million in incremental borrowing and a $60 million contraction in total supply. Liao's proposal includes a two-phase approach to adjust Aave's rate parameters. The first phase involves immediate action to raise Slope 2 to 40% and lower optimal utilization to 87%. A subsequent governance vote would further adjust these parameters, potentially increasing the maximum supply rate to 48%. Aave founder Stani Kulechov stated that the team is actively working on solutions, including the recovery of $70 million in ETH by the Arbitrum Security Council. The proposal awaits further input from LlamaRisk, Aave's risk service provider.