Daily Flash | Aave, Compound Proposed To Change Interest Rate Models To Mitigate Risk For ETH Lending, Frax Finance Launches Lending Market, 3AC Withdraw $45M

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Today's Headline - Crypto lending platforms react to high ETH borrowing by traders ahead of The Merge: The Block Report

Holders of ETH are hoping for a potential bonus in the form of a "powETH" token airdrop following The Merge. Many have taken the approach to borrow ETH on the current blockchain with plans to repay it after The Merge and sell any forked tokens they receive. As such, DAO-based lending protocols are taking varying approaches to reduce widespread market disruption in light of the surge in borrowing activity.

Leading DAOs such as Aave, Compound, and Euler which support the underlying infrastructure of ETH lending markets are taking different approaches to mitigate risk and market disruption ahead of The Merge.

In a recently published risk mitigation plan, Aave has proposed to halt ETH borrowing and increase the variable borrow APR at 100% utilization from 103% to 1,000% in the interim period leading up to The Merge, citing three latent risk factors related to increasing ETH utilization that include potentially difficult or impossible liquidations, negative APY on ETH positions, and an increase in ETH withdrawals by regular suppliers.

Compound, on the other hand, proposed the implementation of a borrow cap, swap out the interest rate model with a jump rate model, and increase borrow rates to accommodate withdrawal liquidity. To discourage full utilization of its borrowing and withdrawal markets and reduce cases of insolvency or other market disruption, Compound’s jump rate interest model will set rates based on utilization with a 2% rate at 0% utilization, a 20% rate at optimal utilization and a 1,000% rate at 100% utilization, where optimal utilization caps at 80%.

In contrast to both Aave and Compound’s activeness, Euler Labs co-founder and CEO Michael Bentley proposed a starkly different approach, that Euler refrain from altering its interest rate model for ETH, allowing borrowers to accumulate ETH in the days leading up to the Merge, and letting lenders fill the demand.

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Chart of the Day - Ethereum Classic Achieved a New ATH Hash Rate

As of this writing,
Bitcoin (BTC) is changing hands at around $18,821, down 4.54% in the past 24 hours,
while Ether (ETH) is trading at $1,527, or down 6.27% during the same period.

Major Layer-1 Tokens are all following similar patterns and trading in the red,
with Cardano (ADA) down by 6.26%,
Solana (SOL) -4.72%,
Polkadot (DOT) -7.52%,
Avalanche (AVAX) -8.25%,
and Cosmos (ATOM) -5.0%.


Notable gainers include:
Voyager Token (VGX) at $0.733 (+27.17%),
Firo (FIRO) at $2.86 (+10.93%),
Stargate Finance (STG) at $0.645 (+8.54%).

Notable losers include:
Victoria VR (VR) at $0.0126 (-20.89%),
Pocket Network (POKT) at $0.106 (-19.61%),
IoTeX (IOTX) at $0.0272 (-23.19%).

Up until the US market opened during Tuesday trading, Layer 1 protocols were pumping like it was 2021. Investor sentiment was buoyed after the Bellatrix hard fork, the first stage of Ethereum’s much-anticipated Merge, was completed successfully.

Stock market indices such as the S&P 500 and Nasdaq closed lower on the day at -0.74% and -0.41%, respectively.

According to a Tuesday report by CoinShares, crypto investment products had roughly $9 million in inflows last week, stopping a three-week run of outflows.

Despite continued low trading volumes and declining assets under management in crypto investment products overall, money going into the budding short Bitcoin offering space reached an all-time high. Short Bitcoin investment products now have $158 million in assets under management — a new high — according to the report.

Last week’s trading volumes in crypto investment products hovered around $900 million, similar to levels seen last week — the lowest since October 2020.

“This follows the recent FOMC meeting at Jackson Hole where a much more hawkish view was expressed, unexpected by some investors,” CoinShares Head of Research James Butterfill said in the report. Some analysts predict another 75 basis point rate hike this month.


As a third bearish wave can be clearly seen on the daily chart, the bears will now attempt to bring the price of BTC towards the next support zone formed between the weekly support level of $18,431 and the 161.8% Fibonacci extension level ($18,266) measured from Aug. 13 - 19.

To invalidate this outlook, the bulls will have to use the aforementioned support zone as an anchor point to protect prices from falling further.


As of this writing, ETH is trading above the support zone formed between the last price of last Tuesday’s daily candle ($1,524) and the 38.2% Fibonacci level ($1,500) measured from Apr. 3 - Jun. 18.

As yesterday’s attempt to break the height of Aug. 26 before the unexpected slump has created a lower wave on the daily chart, the bears will now attempt to break the current support zone to bring the price of ETH back towards the monthly support level of $1,428.

To invalidate this bearish outlook, the bulls will have to hold above the current support zone to prevent the complete forming of a lower wave on the daily chart. If they fail to do so, the monthly support level of $1,428 may be the last straw before seeing ETH plunges further below.

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Influencer of the Day - UK’s Truss Picks Kwasi Kwarteng to Be Finance Minister: Coindesk Report

The governing Conservative Party picked Liz Truss as leader of the party and the country’s prime minister on Monday, and Truss named Kwasi Kwarteng as the country's next finance minister.

In a report from June 2021 titled UK Innovation Strategy, Kwarteng’s department identified blockchain systems as one of the “seven technology families that will transform our economy in the future.”

In July, his previous department announced a 53 million British pound (US$61.3 million) fund for supporting technological innovation, including the use of blockchain in supply chains.

However, It is unclear to what extent Kwarteng supports former Finance Minister Rishi Sunak’s crypto vision for the country as the latter had plans to turn the country into a crypto hub before he resigned from the government in July.

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Buzzes of Yesterday

Highlights:

#Ethereum Bellatrix Upgrade Successfully Launched On Tuesday
#Frax Finance Launches Its Own Lending Market
#Chinese Metaverse Industry Raised $780M
#Miners Hive and Hut 8 Seek To Shift Computing Power to Cloud Computing and AI
#3AC Withdraws $45M From Curve and Convex
#Russian Finance Ministry Working On Stablecoin Platforms

DeFi

NFTs & Metaverse

Mining

Business & Finance

Governments & Policies

Crime & Order

Author: Gate.io Researcher Peter L.
This article represents only the researcher's views and does not constitute any investment advice.
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