Aave Stops Ethereum (ETH) Borrowing Ahead Of The Merge

Aave neighborhood is about to vote on a brand new proposal to pause Ethereum (ETH) borrowing till the Merge. The DeFi platform Aave believes the protocol faces excessive utilization dangers within the ETH market as a result of controversial Ethereum arduous fork proposal ETHPoW.

Aave Proposal to Pause ETH Borrowing Till the Merge

The DeFi lending and borrowing protocol Aave has introduced the proposal “Temporarily Pause ETH Borrowing” to cease Ethereum borrowing on Aave till the Merge. The voting on the proposal begins as we speak, Aug 30, 2022, and ends on September 2.

Aave considers the protocol faces dangers of excessive utilization within the ETH market as a result of ETHPoW arduous fork. Thus, pausing the ETH borrowing on the protocol will higher mitigate the chance.

Customers could reap the benefits of the forked Ethereum PoW token (ETHW) by borrowing ETH earlier than the merge. Due to this fact, making a threat of excessive utilization within the ETH market earlier than the Merge. The excessive utilization will affect liquidation transactions, rising insolvency dangers for Aave.

Furthermore, a excessive ETH borrowing can affect the stETH/ETH recursive borrowing positions on Aave. In recursive borrowing, DeFi buyers staked their ETH and get stETH, then they deposit the stETH as collateral on a lending protocol reminiscent of Aave to borrow extra ETH and get extra stETH, and the cycle continues. At the moment, about $907 million in stETH is collateralized for ETH borrowing on Aave.

This may increasingly trigger customers to unwind their positions, which is able to additional deviate the stETH/ETH peg. Due to this fact, rising dangers of further liquidations and insolvency within the crypto market.

The snapshot vote additionally proposes to supply a one-time cost of 60 AAVE from the Aave treasury to the MakerDAO. It helps forestall proxy in relation to the proposal.

The snapshot voting has 4 choices obtainable for the Aave neighborhood. These embrace quickly pausing ETH borrowing and paying 60 AAVE tokens, quickly pausing ETH borrowing however deciding on cost in a special proposal, don’t pause ETH borrowing, and abstain from voting.

Aave Helps Ethereum Merge, However Not ETHPoW

Aave DAO had handed a proposal to support the Ethereum PoS after the Merge and keep away from any Ethereum fork reminiscent of ETHPoW.

Ethereum Merge is anticipated on September 15 because the Ethereum core builders and co-founder Vitalik Buterin confirmed earlier. The ETH value will grow to be deflationary after the Merge.