Aave's USDG rollover proposal faces borrowing costs that exceed yields
Yield falls short of borrowing costs in Aave's proposed rollover
Aave has proposed a rollover plan that would let borrowers replace their current stablecoin collateral with a new Pendle principal token (PT) maturing in February 2027. But analysis shows the yield from that token currently falls below the cost of borrowing three of Aave's stablecoins.
The proposal, introduced by TokenLogic, would allow holders of a PT maturing Oct. 29 to swap it for one maturing Feb. 25, 2027, using a flash loan. The plan would need both an Aave listing and a separate integration by OKX to work.
Risk provider LlamaRisk assessed the proposal on Oct. 8 and found the February PT's yield was insufficient to cover borrowing costs for USDT0, USDC and USDG. Only GHO remained cheaper to borrow than the token's yield.
Numbers show the gap
- February PT yield: approximately 2.98% annualized, or about 1.11% gross appreciation over the roughly 137-day holding period
- USDT0 borrowing APY: 4.12%
- USDC borrowing APY: 5.87%
- USDG borrowing APY: 3.75%
- GHO borrowing APY: 0.93%
Pendle data and Aave market data were both retrieved around 21:09–21:11 UTC on Oct. 10.
What LlamaRisk found
LlamaRisk's October assessment used Oct. 7 data and found similar results: a 2.79% PT yield against borrowing rates of 4.48% for USDT0, 4.10% for USDC and 3.67% for USDG. GHO at 0.93% was still below the PT yield.
The risk firm noted that USDG is absent from its recommended new Aave borrowing category, E-Mode 9, which lists USDT0, GHO and USDC as borrowable assets. This means USDG's rate serves as a cost comparison rather than proof that USDG can be borrowed under the proposed configuration.
This contrasts with LlamaRisk's August review of the October maturity token, which quoted a 3.19% PT yield against much lower borrowing rates of 0.45% for GHO, 1.37% for USDT0 and 2.69% for USDG. That earlier review described the strategy as having positive carry.
How leverage affects returns
The relationship between yield and borrowing cost becomes sharper when leverage is applied. Aave is a decentralized lending platform that lets users borrow against crypto assets. In this case, borrowers would use stablecoins like USDT0, USDC and USDG, which are cryptocurrencies pegged to the US dollar.
An illustrative analysis assuming constant borrowing rates through maturity and excluding rewards, transaction costs and rebalancing showed the following returns on equity by Feb. 25:
| Funding source | Borrow APY | Return at 2x exposure | Return at 5x exposure |
|---|---|---|---|
| USDT0 | 4.12% | +0.69% | -0.56% |
| USDC | 5.87% | +0.05% | -3.11% |
| USDG (comparator only) | 3.75% | +0.83% | -0.02% |
At two times exposure, the return on the investor's own capital can still absorb the negative spread on borrowed funds. At five times exposure, financing costs consume more than the gross PT gain in all three cases. A standalone PT position without borrowing would earn about 1.11% before costs over the holding period.
Uncertainties remain
Several factors could change the outcome. Actual borrowing rates can fluctuate throughout the holding period. Transaction costs including 0.05% taker fees for the February pool's AMM and orderbook, slippage, network fees and any flash-loan charges are not included in the calculations above. A thin positive result could disappear after these costs.
Reward eligibility is also unresolved. The October Wallet bonus terms reference the October token, but February rewards require separate terms. The Aave listing and the OKX integration both still need to be implemented.
Why this matters
The proposal illustrates the difference between transaction convenience and investment profitability. A rollover can preserve access to borrowing while resetting the collateral's yield at a new purchase price, but the economics only work if the yield exceeds the cost of borrowed funds. With current rates, that condition is not met for most borrowing options.
Related context
Aave recently raised GHO borrow rates to address depleted stablecoin pools, according to a CryptoSlate report. The move came amid broader pressure on stablecoin liquidity across the protocol.
What is still unclear
Whether GHO borrowing rates will remain low enough to support the strategy through February. Whether OKX will complete its integration. What reward terms, if any, will apply to the February position. How borrowing rates may shift in the coming months.
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.