The Aave community proposes temporarily suspending ETH lending before to the Merge

The governance vote to approve the pause will take place on August 30, 2022, and will conclude on September 2, 2022.

With the Ethereum Merge approaching, the risk research and analysis team Block Analitica advocated a temporary halt in Ether (ETH) borrowing to avoid the dangers of a DeFi implosion in the Aave lending protocol during the Merge.

The team raised the possibility of excessive ETH consumption, which might make liquidations difficult or impossible, and annual percentage yields (APYs) reach negative values. Furthermore, the uncertainty around the Merge and a hypothetical Ethereum proof-of-work (PoW) fork may prompt liquidity providers to launch a bank run, increasing demand even further.

Block Analitica recommended numerous alternatives, including a temporary halt to ETH lending on the Aave platform and a 1,000% increase in the variable borrow annual percentage rate (APR) at 100% usage.

The market risk assessment team Gauntlet network indicated support for ETH borrowing in response to the idea. They did, however, advise splitting the idea into two pieces and undertaking additional research on Block Analitica’s second alternative.

Finally, community members initiated a vote to support the suspension of ETH borrowing on the Aave platform. It will start on August 30, 2022 and end on September 2, 2022. Members of the community can select whether or not to consent to a stop in lending.

Aside from DeFi platforms, centralized exchanges have expressed worries and implemented remedies for the potential consequences of the imminent Ethereum merger. Binance said last week that it will halt ETH and ERC-20 token withdrawals to ensure stability during the Merge.

Meanwhile, Coinbase has stated that it will be analyzing any potential forks that may result from the forthcoming ETH Merge. The assets, according to the business, will be assessed in the same manner as any other asset that trades on its market.