Aave community has voted in majority to approve the proposal to temporarily halt Ethereum borrowing until the Merge with immediate effect. The voting indicates the community agrees to pause Ethereum (ETH) borrowing to mitigate high ETH borrowing risks on Aave amid the Merge and Ethereum hard fork.
Aave Community Approves to Pause ETH Borrowing
The Aave community voted on the governance proposal “Temporarily Pause ETH Borrowing” between August 30-September 2. The option to temporarily pause ETH borrowing and pay 60 AAVE tokens has received maximum votes, with 96.18% agreeing with the proposal.
Meanwhile, options to temporarily pause ETH borrowing and decide token payment in a separate proposal, do not pause ETH borrowing, and abstain from voting have received 3.07%, 0.13%, and 0.62% votes, respectively.
The community agrees to pause ETH borrowing and pay 60 AAVE from the Aave treasury to the MakerDAO, preventing proxy in relation to the proposal. In fact, voters have used almost 214k AAVE to approve the proposal.
Aave believes users can misuse the forked Ethereum PoW token (ETHW) by borrowing ETH before the Merge. This risks the high utilization of Ethereum (ETH) on Aave ahead of the Merge. Also, it may cause liquidations and annual percentage yields to become negative. Therefore, it increases the insolvency risk for Aave.
Moreover, high ETH borrowing can impact the stETH/ETH recursive borrowing positions on Aave. This may lead to users liquidating their position, which will impact the stETH/ETH peg. Thus, it may risk further liquidation and insolvency in the crypto market.
With the majority approving the proposal to pause ETH borrowing on Aave, the community has mitigated all risks. Moreover, Aave DAO has already passed a proposal to support the Ethereum Merge. However, the lending platform has turned down support for any Ethereum hard fork.
Ethereum Merge Set to Happen Before the Anticipated Date
The probability of the Ethereum Merge happening before the anticipated date of September 15 is higher as the average hash rate has jumped above 900 TH/s.
Vitalik Buterin claimed the exact date of Ethereum Merge depends on the hash rate. The network needs an average hash rate of 872 TH/s to trigger the Merge on September 15. A higher hash rate will likely push the Merge to happen earlier.
