Why was it only Tether’s borrow rate on AAVE that skyrocketed when USDC briefly depegged?

Hi Reddit DeFi, I’m not a regular here, but I have a question that’s been puzzling me for a long time and I was thinking you might have the expertise to help.

You may remember, a couple months ago, that USDC started to de-peg as a result of the Silicon Valley Bank scare. I have a small stablecoin position on AAVE, and I would have predicted that the USDC scare would cause interest rates on USDC to rise dramatically, and for rates on Tether to go down, basically as people swapped / shorted out of USDC and into Tether. But to my shock it was nearly the opposite: USDC stayed at its 2% or so APY, and tether skyrocketed above 100% APR for a while. And I just can’t work out *why*. But then, I’m no finance expert. Is there some obvious trade I’m missing?

I see that in theory demand for USDC should be very low, and tether demand should be relatively high, so the “price” of USDC should fall and that of Tether should rise. But I don’t see how that plays out in the case of AAVE. As I understand their [rate algorithm]( it’s basically about pool size, and I would have expected USDC’s pool to be shrinking quickly during the de-peg scare, while I would expect Tether’s to be growing fast.

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