The Aave community proposes the temporary suspension of ETH lending on the Aave platform in preparation for the Ethereum merge set to occur in September.
Block Analitica proposes a temporary pause in Ether (ETH) borrowing to mitigate risks that may lead to DeFi implosion.
The move comes after the risk research and analysis team predicted a DeFi implosion on Aave.
With the Ethereum merge coming this September, Block Analitica found it necessary to take precautions.
Effects of the merge on Aave
The decentralized finance (DeFi) implosion is expected on the Aave lending protocol during the merge. High ETH utilization will result in liquidations seeming to be difficult or impossible.
Annual percentage yields (APYs) may also reach negative figures.
The Block Analitica team realized the risks and pointed them out in advance. Uncertainties concerning the merge may propel liquidity providers to start bank runs. The move will push utilization to higher levels.
The merge and a potential proof of work (PoW) for Ethereum seem imminent.
The team handed in a proposal citing several solutions. Block Analitica proposed a temporary halt on ETH lending on Aave. The team also suggested increasing the variable borrow annual percentage rate.
The proposal recommends a rise in the annual percentage rate at 100% utilization from 103% to 1000%.
According to Gauntlet Network, the proposal needs to appear in two parts. The market risk assessment team supports the pausing of ETH borrowing. However, the team proposed a deep analysis with regard to the second solution.
Will exchanges suspend ETH lending?
The community members voted and the team reached a decision to pause ETH borrowing. Block Analitica will pause ETH borrowing on the Aave platform. The process commences on August 30 2022 and ends on September 2, 2022.
Different platforms continue to prepare for Ethereum’s merge in September. Crypto exchanges expressed concerns regarding the possible effects of the Ethereum merge. The digital assets trading platforms also set up countermeasures to mitigate the effects.
Early last week, Binance announced that they intend to pause ETH withdrawals. Binance also reiterated that the decision affects the ERC-20 Token. The crypto exchange cited that the decision will provide stability during the merge.
Meanwhile, Coinbase promised to review any potential forks after the Merge. The crypto exchange cited that they will review assets traded within the exchange.
The Ethereum merge
The merge represents the joining of the existing execution layer of Ethereum with its new PoW consensus layer. Soon, the current Ethereum mainnet will merge with the Beacon Chain Proof-of-Stake system.
The merge marks the end of the proof-of-work for Ethereum. Ethereum expects a full transition into the proof-of-stake. This sets the stage for future scaling upgrades including sharding. The merge will reduce Ethereum’s energy consumption by about 99.95%.
The merge signifies the most important upgrade in the History of Ethereum. Extensive testing and bug bounties will continue in order to ensure a safe transition to proof of stakes. The process of testing currently stands at its final stages.
Ethereum plans to undergo the merge on a few public testnets before moving to the mainnet.
