Citing advice from analytics firm Block Analitica, a community proposal says that the Ethereum merge will present significant risks to the DeFi borrowing and lending markets.
“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.”
An overwhelming 96.1% of community members voted “Yes” to the proposal, thus putting a freeze on the borrowing of ETH.
According to the original forum post, Block Analitica will be rewarded 60 AAVE from the governance system for coming up with the proposal.
“If this proposal is adopted, a one-time payment of 60 AAVE will be transferred from the Aave governance to the MakerDAO pause proxy. This is intended to compensate for Block Analitica’s research and development costs in connection with this proposal.”
This article was originally published on dailyhodl.com