Decentralized lending platform Aave has halted lending Ethereum (ETH) loans to users in order to protect itself from risks that could arise from a surge in borrowing demand for Ether from crypto traders betting on the Ethereum blockchain’s upcoming technological overhaul.
According to research firm Block Analitica, the development came after the Aave community overwhelmingly voted (last week) to stop loaning Ether.
Aave temporarily halted the processing of Ether loans until the Merge completed its upgrade. The move is designed to mitigate protocol-wide risks that may arise from Ethereum’s upcoming transition to a proof-of-stake (PoS) consensus mechanism from a proof-of-work (PoW) mechanism, dubbed the Merge. The upgrade is expected to occur between September 13 and 20.
“Ahead of the Ethereum Merge, the Aave protocol faces the risk of high utilization in the ETH market. Temporarily pausing ETH borrowing will mitigate this risk of high utilization,” Block Analitica said.
The utilization rate refers to the percentage of the pool loaned out. The rate will likely increase as users could borrow ETH before the Merge to receive free money or the potential Ethereum fork token ETHPOW.
The Ethereum “Merge” will shift the Ethereum blockchain (native token ETH, or ether) from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism that uses over 99.9% less energy.
However, a chain split is likely to occur on Ethereum post Merge, with POW and POS going