The DeFi platform Aave community has voted on a new proposal to temporarily suspend borrowing in Ethereum (ETH) until The Merge update. DeFi platform Aave believes the protocol faces high usage risks in the ETH markets due to the controversial Ethereum hard fork ETHPoW.

DeFi lending and borrowing protocol Aave has announced a “Temporary Suspension of Borrowing in ETH” proposal to temporarily suspend borrowing in Ethereum on the Aave platform until The Merge update. Voting on the proposal will begin today, 30 August 2022, and will end on 2 September.

Aave is of the opinion that there are high usage risks in the ETH markets due to the expected hard fork of the protocol, ETHPoW. For this reason, it is thought that the risk will be minimized by temporarily suspending borrowing in ETH in the protocol.

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Users can borrow ETH before The Merge update and receive it in Ethereum PoW (ETHW) token, which will be released as a result of the hard fork. This causes high usage risk in ETH markets before The Merge. High usage may affect liquidation processes and cause Aave to go bankrupt.

Moreover, high ETH borrowing may also affect stETH/ETH recursive borrowing positions on Aave. In recursive borrowing, DeFi investors stake their ETH and receive STETH, then deposit stETH as collateral in a lending protocol like Aave to borrow more and get more stETH in ETH, and so on. Currently, around $907 million in stETH is secured for borrowing in ETH on Aave. This can cause users to loosen their position, which will deflect the stETH/ETH constant (peg). Therefore, there are additional risks of liquidation and bankruptcy in the cryptocurrency markets.

Aave DAO previously accepted a proposal submitted after The Merge update to support Ethereum PoS and not support any Ethereum hard fork such as ETHPoW. As Ethereum core developers and co-founder Vitalik Buterin previously confirmed, the highly anticipated update of The Merge of the largest altcoin network is expected on September 15. After The Merge, ETH is expected to become deflationary and the altcoin's price is expected to rise in the long run.