Breaking: Aave Stops Ethereum (ETH) Borrowing Ahead Of The Merge

By Varinder Singh
Updated September 6, 2022

Aave community is set to vote on a new proposal to pause Ethereum (ETH) borrowing until the Merge. The DeFi platform Aave believes the protocol faces high utilization risks in the ETH market due to the controversial Ethereum hard fork proposal ETHPoW.

Advertisement
Advertisement

Aave Proposal to Pause ETH Borrowing Until the Merge

The DeFi lending and borrowing protocol Aave has announced the proposal “Temporarily Pause ETH Borrowing” to stop Ethereum borrowing on Aave until the Merge. The voting on the proposal starts today, Aug 30, 2022, and ends on September 2.

Aave considers the protocol faces risks of high utilization in the ETH market due to the ETHPoW hard fork. Thus, pausing the ETH borrowing on the protocol will better mitigate the risk.

Users may take advantage of the forked Ethereum PoW token (ETHW) by borrowing ETH before the merge. Therefore, creating a risk of high utilization in the ETH market before the Merge. The high utilization will impact liquidation transactions, increasing insolvency risks for Aave.

Moreover, a high ETH borrowing can impact the stETH/ETH recursive borrowing positions on Aave. In recursive borrowing, DeFi investors staked their ETH and get stETH, then they deposit the stETH as collateral on a lending protocol such as Aave to borrow more ETH and get more stETH, and the cycle continues. Currently, about $907 million in stETH is collateralized for ETH borrowing on Aave.

This may cause users to unwind their positions, which will further deviate the stETH/ETH peg. Therefore, increasing risks of additional liquidations and insolvency in the crypto market.

The snapshot vote also proposes to offer a one-time payment of 60 AAVE from the Aave treasury to the MakerDAO. It helps prevent proxy in relation to the proposal.

The snapshot voting has four options available for the Aave community. These include temporarily pausing ETH borrowing and paying 60 AAVE tokens, temporarily pausing ETH borrowing but deciding on payment in a different proposal, do not pause ETH borrowing, and abstain from voting.

Advertisement
Advertisement

Aave Supports Ethereum Merge, But Not ETHPoW

Aave DAO had passed a proposal to support the Ethereum PoS after the Merge and avoid any Ethereum fork such as ETHPoW.

Ethereum Merge is expected on September 15 as the Ethereum core developers and co-founder Vitalik Buterin confirmed earlier. The ETH price will become deflationary after the Merge.

Currently, the ETH price is trading at 1,664, up nearly 4% in the last 24 hours. The Bellatrix hard fork has been implemented successfully.

Advertisement
Varinder Singh
Varinder has over 10 years of experience and is known as a seasoned leader for his involvement in the fintech sector. With over 5 years dedicated to blockchain, crypto, and Web3 developments, he has experienced two Bitcoin halving events making him key opinion leader in the space. At CoinGape Media, Varinder leads the editorial decisions, spearheading the news team to cover latest updates, markets trends and developments within the crypto industry. The company was recognized as Best Crypto Media Company 2024 for high impact and quality reporting. Being a Master of Technology degree holder, analytics thinker, technology enthusiast, Varinder has shared his knowledge of disruptive technologies in over 5000+ news, articles, and papers.
Why trust CoinGape: CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights to our readers. Our journalists and analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.