KVORUM
aaveSource: Aave governor v2 · #97

Pause ETH Borrowing

executedSep 6, 2022, 12:07 AM UTCby680x683a…6c02

01Summary

AISummary by Kvorumclaude-haiku-4-5

Pause ETH borrowing on Aave ahead of the Ethereum Merge to mitigate high utilization risks, and transfer 60 AAVE tokens to MakerDAO pause proxy as a one-time payment.

Type
protocol addition

Key changes

  • Disable ETH (WETH) borrowing on Aave to prevent high utilization ahead of Ethereum Merge(high)
  • Transfer 60 AAVE tokens from ecosystem reserve to MakerDAO pause proxy (0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB)(medium)

Notable concerns

  • High ETH utilization could interfere with liquidation transactions and increase protocol insolvency risk
  • Users may borrow ETH before the merge to benefit from forked PoW ETH (ETHW)
  • High ETH borrow rates could make stETH/ETH recursive positions unprofitable, causing position unwinding and stETH/ETH price deviations that trigger additional liquidations
Contracts0x3d569673daa0575c936c7c67c4e6aeda69cc630c0x311bb771e4f8952e6da169b425e7e92d6ac45756
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Read the description ↗

02Description

218 words

Simple Summary

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

In addition, this AIP also transfers a one-time payment of 60 AAVE from the Aave treasury to the MakerDAO pause proxy in connection to the proposal.

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.
  • Sending 60 AAVE to the MakerDAO pause proxy located at 0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB from the ecosystem reserve.

Copyright

Copyright and related rights waived via CC0.

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.

03Mismatch analysis

AIMismatch analysis by Kvorumclaude-sonnet-5
Consistent

The proposal describes two actions: (1) disabling ETH borrowing via disableBorrowingOnReserve, and (2) sending 60 AAVE from the ecosystem reserve to the MakerDAO pause proxy at 0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB. The decoded calldata contains exactly these two actions: action 0 transfers 60 AAVE (60e18 wei, correctly converted for 18 decimals) from the Aave collector to the same recipient address stated in the description, and action 1 calls disableBorrowingOnReserve targeting the WETH asset address (0xC02aaA39b223FE8D0A0e5C4F27eAD9083C756Cc2), which is the canonical WETH/ETH reserve on Aave. Both the recipient address and the AAVE amount match exactly between prose and calldata, and the borrowing-disable call targets the correct asset. No extra, omitted, or mismatched values were found. The description is accurate and complete relative to the on-chain actions.

Generated by Kvorum
model: claude-sonnet-5
provider: anthropic
profile: anthropic-strong-v1
prompt: v1.0
generated: 2mo ago
Review the decoded actions ↗

04Actions

2 total
#0transfer(address,address,address,uint256)chain 0x1
Target
0x3d56…630c
Value
0 wei
Function
transfer(address,address,address,uint256)
Arguments
{
  "token": "0x7Fc66500c84A76Ad7e9c93437bFc5Ac33E2DDaE9",
  "amount": "60000000000000000000",
  "collector": "0x25F2226B597E8F9514B3F68F00f494cF4f286491",
  "recipient": "0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB"
}
Calldata
#1disableBorrowingOnReserve(address)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
disableBorrowingOnReserve(address)
Arguments
{
  "asset": "0xC02aaA39b223FE8D0A0e5C4F27eAD9083C756Cc2"
}
Calldata

05Tally

Summed from votes

Voters0
VP participating0
Outcome (current)—
Current support—

06Voters

0 total

No votes recorded yet.

07Forum

AIForum synthesis by Kvorumclaude-haiku-4-5
sentiment · contentiousthread · constructive

Arguments for

  • Pausing ETH borrowing mitigates the risk of high utilization and liquidation cascades by preventing additional ETH borrow demand in the lead-up to the merge.— Primoz, Pauljlei, Emilio, monet-supply
  • High ETH utilization makes liquidations harder or impossible because majority of ETH will be borrowed, leaving insufficient collateral for liquidators to source.— Primoz, monet-supply
  • Speculative ETH borrowing for ETHPoW fork farming creates profitability incentives that will drive utilization to 100% regardless of interest rate changes.— Primoz, monet-supply
  • ETH borrowing pause can be quickly reversed post-merge, minimizing long-term competitive disadvantage against other protocols.— Emilio, tarun

Arguments against

  • Pausing borrowing does not address the core risk of ETH supply withdrawals and may actually increase withdrawal incentives, still leading to 100% utilization.— sakulstra, eboado, stani
  • Sophisticated borrowers will borrow shortly before the merge with minimal protocol risk, while less sophisticated borrowers face rational disincentives due to high volatility, making the intervention unnecessary.— eboado
  • Pausing borrowing removes the market's ability to normalize after the fork through ETH redemptions and creates unfair competitive advantage for protocols that keep borrowing enabled.— MarcZeller, sakulstra, stani
  • Liquidators can still liquidate positions by accepting aWETH as payment, and even a 10% stETH depeg does not cause catastrophic cascading liquidations based on analysis.— eboado, stani

Unresolved concerns

  • Unclear how much stETH/ETH recursive position deleveraging will occur and what stETH depeg level would result, potentially creating cascading liquidations.— Pauljlei, monet-supply
  • Difficult to predict whether pausing borrowing will increase ETH withdrawal risk sufficiently to offset the benefits of preventing borrow-driven utilization.— tarun, eboado, sakulstra
  • Uncertainty around how long speculative merge behavior will persist and whether market assumptions about ETHPoW fork value (1-3%) are accurate.— tarun, monet-supply
  • Whether Curve and other AMM liquidity pools will be sufficiently available for liquidators to unwind positions during periods of high utilization and volatility.— Primoz, Pauljlei

Notable participants

  • PrimozProposer from Block Analitica; presented initial risk analysis of ETH market utilization ahead of the merge and proposed parameter changes.
  • PauljleiGauntlet representative who supported pausing ETH borrowing, split the proposal into separate governance votes, and provided detailed risk analysis.
  • monet-supplyProvided economic analysis on stETH/ETH positions, fork farming profitability, and liquidator capital requirements; deployed Curve ETH/aWETH pool.
  • eboadoCommunity member who raised concerns about precedent of in-proposal payments and Gauntlet's delayed response, while voting against borrowing pause.
  • sakulstraQuestioned whether pausing borrowing solves the core withdrawal problem and argued for letting market dynamics work without intervention.
  • staniAnalyzed liquidation dynamics and stETH arbitrage opportunities; supported rewarding contributor work but voted against borrowing pause.
  • EmilioStrongly supported immediate ETH borrowing pause as prudent risk mitigation and suggested extending pause to Aave v3 deployments.
  • MarcZellerExpressed concerns about altering free market dynamics and using interest rates for short-term reactions, but accepted borrowing pause for user safety.
  • tarunProvided formal framework for analyzing assumption space and decision trees, clarifying tradeoffs of pausing versus not pausing borrowing.
  • LlamaxyzCreated Dune dashboard to monitor stETH/ETH recursive positions and provided data on leverage reduction over time.
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Open the thread ↗