Aave USDG Rollover Faces Higher Borrowing Costs

Aave’s USDG Rollover Plan Faces Headwinds

Aave’s plan to allow borrowers to roll over their USDG (stablecoin debt) into a new fixed-yield position is running into questions about profitability. The proposed replacement collateral currently offers a yield that falls short of most quoted borrowing rates, according to a recent assessment by risk provider LlamaRisk.

The proposal centers on Pendle principal tokens (PTs) on the X Layer network. Holders of PTs maturing on October 29th would be shifted into a replacement maturing on February 25, 2027. LlamaRisk’s analysis indicates the February token’s on-chain yield is insufficient to cover borrowing costs for USDT0, USDC, and USDG, with GHO being the only exception.

Yield Discrepancy and Leverage Impact

As of October 10th, Pendle’s market API reported a 2.98% annualized yield for the February PT. However, Aave’s X Layer market displayed variable borrowing APYs of 4.12% for USDT0, 5.87% for USDC, and 3.75% for USDG. This gap highlights the importance of leverage and additional rewards in making the rollover financially attractive.

Illustrative calculations show that at 2x exposure, the return on equity can still cover the negative spread on borrowed portions. However, at 5x exposure, financing costs exceed the gross PT gain in all scenarios. Transaction costs, slippage, and network fees could further erode potential profits.

OKX Incentives and Campaign Details

LlamaRisk suggests profitability depends on external incentives offered by OKX Exchange Earn. A separate campaign offers bonus APY for USDG Loop or PT-USDG-29OCT2026 supplied to Aave through a designated OKX Wallet campaign page, capped at 2%. This campaign ends October 28th at 07:00 UTC, with rewards distributed based on deposit shares and subject to a 490,000 USDT reward pool. Eligibility for February rewards and the Exchange Earn expiry require separate terms.

Source: CryptoSlate