Aave, a decentralized finance lending system backed by Ethereum’s blockchain, has paused Ether (ETH) loans in response to a community vote in favor of the suspension as the Merge approaches.
Crypto users can utilize Aave’s protocol to borrow Ether, the Ethereum blockchain’s original digital asset. Notably, the DeFi behemoth has observed increased lending demand in the weeks running up to The Merge.
In Aave’s community, a proposal named “Temporarily Pause ETH Borrowing” was presented to a vote. The idea was based on fears that Ethereum’s PoS improvement might increase Aave’s loan utilization rate.
The utilization rate of Aave is the percentage of ETH leased out versus the amount of ETH remaining in the protocol’s pool. Liquidity concerns gained center stage in the community as anticipation for Ethereum’s PoS upgrade grew.
One main issue was that the utilization rate could reach 100%, resulting in a liquidity bottleneck for Aave’s protocol. Indeed, the initiative, which received 96.18% approval from the community, could act as a deterrent to a liquidity crisis.
At the time of publication, Ethereum’s Bellatrix Upgrade had successfully delivered with a network participation percentage of more than 94%. Moving ahead, engineers would shut down public testnets such as Kiln and prepare for the Paris update later this month.
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