Aave Community is enforcing a major decision before the Ethereum Merge. The community has approved to provisionally stop Ethereum borrowing until the Merge upgrade is effected completely. The community has voted to stop ETH) borrowing to alleviate high ETH borrowing risks on Aave amidst the Merge and Ethereum hard fork.
Aave Community Approves to Pause ETH Borrowing
The temporary pause in the ETH borrowing was a part of the governance proposal, which was voted by the Aave community and will remain in effect between August 30 to September 2. Maximum votes approved the proposal, and 96.18% agreed, which involved temporarily pausing ETH borrowing and paying 60 AAVE tokens.
The other proposals were to momentarily pause ETH borrowing and choose token payment in a separate proposal, do not halt ETH borrowing, and abstain from voting got 3.07%, 0.13%, and 0.62% votes, respectively.
Thus, the Aave Community has agreed to halt ETH borrowings and pay 60 AAVE from the Aave Treasury to MakerDAO, preventing proxy concerning the proposal. Voters have used almost 214k AAVE to approve the bid.
The move was necessary because the community felt users could misuse the forked Ethereum PoW token (ETHW) by borrowing ETH before the Merge. It can lead to a surge in the utilization of Ethereum (ETH) on Aave ahead of the Merge. Another possibility is that it could lead to liquidation, and the annual percentage yields will become negative. Therefore, it increases the insolvency risk for Aave.
Another possibility is the effect on the stETH/ETH recursive borrowing positions on Aave due to high ETH borrowing. It could increase the threat of further liquidation and insolvency in the crypto market.
The latest move by the community has preempted the possibility of any risks associated with the Merge Upgrade.