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Ethereum

DeFi Protocol Aave Temporarily Freezes Ethereum (ETH) Borrowing Leading Up to the Merge

Leading decentralized finance (DeFi) protocol Aave has frozen Ethereum (ETH) borrowing as the main sensible contract platform prepares for the extremely anticipated merge.

Citing recommendation from analytics agency Block Analitica, a neighborhood proposal says that the Ethereum merge will current vital dangers to the DeFi borrowing and lending markets.

The proposal names three major dangers that the merge presents to the Aave ecosystem, primarily stemming from a very excessive utilization of ETH. They embody the potential for liquidations to turn into not possible, the chance of Staked Ether (stETH) positions making damaging annual share yield and the menace of ETH suppliers withdrawing all of their liquidity as a type of warning.

“The threat of excessive utilization in the ETH market is pushed by customers doubtlessly benefiting from the forked PoW ETH (ETHW) by borrowing ETH earlier than the merge. High utilization interferes with liquidation transactions, thus rising the probabilities of insolvency for the protocol.

In addition, a excessive ETH borrow charge could make stETH/ETH recursive positions unprofitable, rising the possibilities that customers unwind their positions and drive the stETH/ETH price deviation additional, inflicting further liquidations and insolvency.” 

An overwhelming 96.1% of neighborhood members voted “Yes” to the proposal, thus placing a freeze on the borrowing of ETH.

According to the authentic discussion board submit, Block Analitica might be rewarded 60 AAVE from the governance system for arising with the proposal.

“If this proposal is adopted, a one-time payment of 60 AAVE will be transferred from the Aave governance to the MakerDAO pause proxy. This is intended to compensate for Block Analitica’s research and development costs in connection with this proposal.”

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Featured Image: Shutterstock/Space creator/Natalia Siiatovskaia

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