Temporarily Pause ETH Borrowing

Simple Summary

A proposal to pause ETH borrowing in the period leading up to the Ethereum Merge.

In addition, the original forum post also proposed transferring a one-time payment of 60 AAVE from the Aave treasury to the MakerDAO pause proxy in connection to the proposal. In this Snapshot vote, we also provide the options to vote for this payment.

Abstract

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.

Motivation

Full details are provided in the original forum post.

The risk of high utilization in the ETH market is driven by users potentially benefiting from the forked PoW ETH (ETHW) by borrowing ETH before the merge. High utilization interferes with liquidation transactions, thus increasing the chances of insolvency for the protocol. In addition, a high ETH borrow rate can make stETH/ETH recursive positions unprofitable, increasing the chances that users unwind their positions and drive the stETH/ETH price deviation further, causing additional liquidations and insolvency.

Specification

• Calling disableBorrowingOnReserve to disable ETH borrowing.

The options for this Snapshot vote are as follows:

1. Yes (temporarily pause ETH borrowing) and pay 60 AAVE tokens
2. Yes (temporarily pause ETH borrowing) and decide on payment later. The community can revisit the proposed payment later, but that should not block the community from taking action (pause ETH borrowing) to derisk Aave in the interim
3. No (do not pause ETH borrowing)
4. Abstain

Next Steps

• Targeting an AIP on 2022-09-02.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.