Ethereum Merge Could Affect DeFi Protocols And Stablecoins

By Bfab | Good vibes | 29 Aug 2022

According to a report from Dappradar, The Merge could affect DeFi protocols and stablecoins:

Grayscale’s concern is that the Merge might create a scenario where stablecoins and tokens locked in smart contracts might not be redeemable.

The crypto investment firm also notes that token and stablecoin holders might panic and start liquidating their holdings. Such an outcome would create a substantial amount of sell pressure.

MakerDAO already expressed some concerns on Twitter. Aave did not express any concern yet. This report is interesting since some other reports mentioned that DAI could lose its peg to the USD, after having being criticized for being mostly backed up by USDC, which is a centralized stablecoin.

Therefore, The Merge generates a risk for both the stablecoins and the lending protocols which use them as reserves. The situation is quite different from LUNA and UST since UST was backed by LUNA which was... Backed by nothing. However, we all know that crypto is about trust. If some people start freaking out, DAI will likely depeg, which will impact ETH and most of the ERC-20 tokens.

The fundamentals of ETH are still there and it is certainly a high potential asset in the long term. In the short term, nothing is more uncertain.

Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.

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