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The growing number of speculators taking out Ether (ETH) loans to maximize their chances of winning forked Ether Proof of Work Tokens (ETHPoW) has become a headache for decentralized financial protocols. I’m here.
This issue has been around for the past month, given that a significant number of Ether miners are expected to continue working on forked PoW chains, or multiple chains may post the long-awaited Merge. It’s gaining momentum.
In the event of a fork, on-chain ETH hoddlers, such as those using non-custodial wallets or holding exchanges that support ETHPoW, will airdrop new tokens in amounts equal to their ETH holdings. .
This is because the existing chain’s ETH balance is cloned into the forked PoW chain.
On September 6th, the Aave governance community overwhelmingly voted We support the suspension of ETH lending during the interim period leading up to the merger.
The proposal was first put forward on August 24 as a result of demand for Aave ETH loans surging to levels that began to put pressure on the liquidity supply.
Aave has a complex structure for issuing interest rates and uses algorithms to determine percentages given liquidity and borrowing demand on the platform.
If the ETH borrowing rate reaches 5%, this will occur shortly after the utilization rate is 70% (currently 63%), stETH/ETH positions will start to become unprofitable, the proposal said Aug. 24. stated as of date.
If these positions start to become unprofitable, users will be advised that ETH borrowing rates will return to stable levels and APY will [Annual Percentage Yield] become tolerant. As such, this will put more pressure on ETH’s liquidity supply on Aave.
In yesterday’s poll, 77.87% (528,290 people) voted in favor and 22.13% (150,170 people) against, and the proposal went into effect on the same day.
Earlier this week, another DeFi lender, Compound Finance, also made a forked Ethereum risk mitigation-related proposal that got voted on. had 0 votes against 347,559 in favor.
Compound’s idea, which went public on Sept. 5, was to set a borrowing limit of 100,000 ETH until the chaos from the merger calmed down.
Additionally, the protocol has updated the interest rate model to a jump rate model with much higher rates after exceeding 80% borrow utilization.
This is hoped to discourage users from overwhelming Compound with borrowing and withdrawals from the platform.
Proposition 122 prepares for merges and potential POW forks by protecting cETH user liquidity.
We will impose a borrowing limit of 100,000 ETH and introduce a new interest rate model with a very high limit.
Voting will begin in two days.https://t.co/7LvUk1lOk7https://t.co/krTBxFUQEe
Compound Labs (@compoundfinance) September 2, 2022
Related: Hive Blockchain explores new minable coins ahead of Ethereum integration
Despite the large number of stablecoins and projects moving away from the PoW chain, users are certainly positioning themselves to obtain free tokens.
According to the latest report from Delphi Digital, the exchange saw a total outflow of 476,000 on August 29, despite the recent drop in ETH’s price.
This is the third largest ETH withdrawal since March, and the company attributes this to Merge and investors redeploying to collect ETHPoW tokens.
In order to maximize the collection of ETHPoW tokens, users are likely withdrawing their ETH balances from centralized exchanges to non-custodial wallets, leading to an increase in the net outflow of ETH from exchanges.
Whether the forked chain will garner strong enough interest to develop a lasting ecosystem and community is unclear, but in the short term cryptocurrency Degen will at least devour free forked tokens. It seems that.
