DeFi (Decentralized Finance) is a good way to make money when everything goes right. When it turns red, it is more questionable. A concrete exemple is Anchor Protocol with LUNA and UST, or the depeg of stETH (staked ETH through Lido) which led to the bankruptcy of Celsius.
How will DeFi protocols react to the Ethereum (ETH) Merge?
The answer is given by Aave, the biggest DeFi lending protocol. Aave indeed announced on Aug. 30 that they may “temporarily Pause ETH Borrowing” (it is only a proposal so far, the vote will end on Sept. 2). According to Cointelegraph:
The team pointed out the potential issue of high ETH utilization, which may result in liquidations being hard or impossible and annual percentage yields (APYs) reaching negative figures. Furthermore, the uncertainties surrounding the Merge and a potential Ethereum proof-of-work (PoW) fork may cause liquidity providers to start a bank run, pushing utilization to even higher levels.
The good news is that Aave community is taking that seriously. What about the other lending protocols, and more generally, all the DeFi protocols? MakerDAO recently explained that the transactions on Ethereum network might be stuck, which may lead to smart contract freezing. This could potentially affect all the other chains linked to Ethereum mainnet, including Polygon, Optimism or Arbitrum, which also use Ethereum mainnet.
More generally, if lending protocols implode, stablecoins will also be affected, e.g., DAI, which will also affect the lending protocols of other chains.
How can you protect yourself from the Merge side effects?
The first thing to do is to get out from DeFi protocols before the Merge. If you want to earn money, you can simply make it by trading, preferably by betting on top coins, e.g., ETH vs. BTC. The volatility of these both coins will get higher when the Merge approaches. You can use the ETH/BTC chart below to identify some buy and sell zones and make money through swing trading. If you missed the 0.073 opportunity, just be a bit more patient...
Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.
Please find below a few links to earn a few coins...
