Landing Platforms Tighten Their Belts Ahead Of Ethereum’s Switch To PoS
- The market sees a surge in demand for ETH
- Users take out loans in ether to sell the currency after the “merger”
- This puts landing platforms in a difficult position.
- Some of them “froze” crypto loans in ETH for a while
The upcoming and long-awaited update of Ethereum has led to a surge in demand for ETH. The number of loans to borrow Ethereum has also grown. Traders plan to implement cryptocurrency in the future, but at the same time, landing protocols have faced an old problem – liquidity pressure.
This led to the fact that some of the platforms limited or completely “ frozen ” crypto loans in this direction. Others take less drastic but still tough measures to ” keep afloat “.
ETH can become a scarce asset, and loans in this currency have low liquidity. A further increase in utilization will make liquidation transactions more difficult. This, in turn, will put the protocol at risk of becoming insolvent.
The situation Around Aave
This DeFi giant is temporarily suspending Ethereum lending until the “merger” is complete. The organization said that significant demand for these loans could cause liquidity problems and also lead to increased volatility in the Lido market.
The corresponding decision was made in the period from 30 August to 2 September. Thus, the Aave quorum set aside the principle of the free market, noting that it takes such a step solely for the sake of minimizing risks.
“Part of the problem is that if you liquidate ETH borrowers in a highly volatile environment, there could be a shortage of the currency. This will slow down the forced sale,” said Yan Solot, partner at the cryptocurrency hedge fund Tagus Capital.
Unlike Aave, in this case, the solution turned out to be more flexible. The Compound quorum accepted the proposal to change the mechanism and terms of lending on the air.
First of all, the platform set a limit of 100 thousand ETH. At the same time, with a 100% load, the rate will be 1000% per annum, with the optimal (80%) – 20%, with a minimum – of 2% instead of 0%.
This will somewhat slow down the market while increasing the liquidity of loans. The number of cases of refusal of a return due to insolvency will decrease, thereby “moving” the protocol from a possible shake-up.
If Aave completely “ freezes ” Ethereum credits and Compound raises rates, then this platform is holding the “ status quo ”. Literally. Euler Labs CEO Michael Bentley commented on the decision in a Twitter thread.
“Some ETH borrowers who took out a loan at the last minute may find that they paid more in interest than they received in the end,” the head of the firm emphasized.
In fact, Bentley offered to satisfy the demand by making money on the ” hype “. He is sure that there will be no shake-up, the situation does not look critical, therefore, there are no prerequisites for radical measures.