The community of lending protocol Aave, on August 30th, put out a vote on suspending $ETH lending between now and “The Merge” event. The reason for the community's desire to suspend $ETH lending is the fear of Aave facing too high a risk of $ETH demand.
Voting is expected to take place between August 30 and September 2 at 23:15
1. Motivation
The risk of high utilization in the ETH market is driven by users potentially benefiting from the forked PoW ETH (ETHW) by borrowing ETH before the merge. High utilization interferes with liquidation transactions, thus increasing the chances of insolvency for the protocol. In addition, a high ETH borrow rate can make stETH/ETH recursive positions unprofitable, increasing the chances that users unwind their positions and drive the stETH/ETH price deviation further, causing additional liquidations and insolvency.
2.Voting options
- Yes (temporarily pause ETH borrowing) and pay 60 AAVE tokens.
- Yes (temporarily pause ETH borrowing) and decide on payment later. The community can revisit the proposed payment later, but that should not block the community from taking action (pause ETH borrowing) to derisk Aave in the interim.
- No (do not pause ETH borrowing).
- Abstain.
Currently, the voting rates are as follows:
