Aave group is ready 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 because of the controversial Ethereum exhausting fork proposal ETHPoW.
Aave Proposal to Pause ETH Borrowing Until 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 at this time, Aug 30, 2022, and ends on September 2.
Aave considers the protocol faces dangers of excessive utilization within the ETH market because of the ETHPoW exhausting fork. Thus, pausing the ETH borrowing on the protocol will higher mitigate the danger.
Users might benefit from the forked Ethereum PoW token (ETHW) by borrowing ETH earlier than the merge. Therefore, making a threat of excessive utilization within the ETH market earlier than the Merge. The excessive utilization will influence liquidation transactions, growing insolvency dangers for Aave.
Moreover, a excessive ETH borrowing can influence 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 corresponding to Aave to borrow extra ETH and get extra stETH, and the cycle continues. Currently, about $907 million in stETH is collateralized for ETH borrowing on Aave.
This might trigger customers to unwind their positions, which can additional deviate the stETH/ETH peg. Therefore, growing dangers of extra liquidations and insolvency within the crypto market.
The snapshot vote additionally proposes to supply a one-time fee 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 out there for the Aave group. These embrace briefly pausing ETH borrowing and paying 60 AAVE tokens, briefly pausing ETH borrowing however deciding on fee in a special proposal, don’t pause ETH borrowing, and abstain from voting.
Aave Supports Ethereum Merge, But Not ETHPoW
Aave DAO had handed a proposal to support the Ethereum PoS after the Merge and keep away from any Ethereum fork corresponding to ETHPoW.
Ethereum Merge is expected on September 15 because the Ethereum core builders and co-founder Vitalik Buterin confirmed earlier. The ETH price will grow to be deflationary after the Merge.
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