With the Ethereum Merge update on the way, the research and risk analysis team Block Analitica proposed a temporary pause in Ether (ETH) lending to mitigate the risks that may lead to an implosion of decentralized finance (DeFi) in the world. Aave lending protocol during upgrade.
The team pointed out the potential issue of high utilization of ETH, which can make settlements difficult or impossible and annual percentage returns into the negative. Additionally, the uncertainty surrounding the upgrade and a possible Ethereum proof-of-work (PoW) fork may cause liquidity providers to initiate a bank run, pushing utilization to even higher levels.
Block Analitica proposed several solutions, including the temporary cessation of ETH lending on the Aave platform and the increase in the variable loan annual percentage rate (APR) at 100% utilization from 103% to 1,000%.
In response to the proposal, the Gauntlet Network market risk assessment team expressed support for pausing ETH lending. Nevertheless, They suggested dividing the proposal into two parts and carrying out more analysis regarding the second solution presented by Block Analitica.
In the end, the community members started the vote to approve the pause of ETH loans on the Aave platform. It will start on August 30 and end on September 2. With this, members of the community can choose whether or not they agree to pause the loans.
Aside from DeFi platforms, centralized exchanges have also raised concerns and taken action for the potential implications of the upcoming Ethereum upgrade. Binance announced last week that it will pause withdrawals of ETH and ERC-20 tokens to provide stability during the rollout of the upgrade.
Meanwhile, digital asset platform Coinbase said it will review any potential hard forks that may come from the upcoming ETH merger. According to the company, the assets will be reviewed in a similar way to any other asset that is traded on its platform.
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