All The ETH On Aave Has Been Borrowed Ahead Of The Merge

Investors have borrowed 100% of the ETH available on Aave, a DeFi lending protocol with $6.5B in total value locked according to The Defiant Terminal. That’s around 643,660 ETH worth over $1B as of Sep. 14.

These traders are almost certainly positioning themselves to receive ETHPoW, the native asset of the proof-of-work Ethereum chain which will continue to run in some form after the Merge switches the network to proof-of-stake consensus.

ETHPoW isn’t an airdrop and it isn’t a free lunch. Investors are currently paying an annualized 180% to borrow ETH on Aave. By holding ETH in their wallets, they will have an equivalent amount of ETHPoW after the Merge.

Aave determines interest rates based on utilization. The lower the supply of an asset available to borrow, the higher the rates.

ETH Borrow Rate On Aave

Aave’s stable borrow rate, which necessitates borrowing at a premium in order to get a fixed rate, is even higher at 190%.

ETHPoW, and by extension the Ethereum proof-of-work chain, is controversial because it represents a departure from the broadly accepted roadmap for Ethereum which has the protocol moving to proof-of-stake in less than six hours.

The spiking rates on Aave show that, regardless of the plan for Ethereum, many investors are betting that it will be worth it to get ETHPoW.

How long traders will hold the token is another matter. Some may hold ETHPoW as a speculative long-term play, while others look to sell immediately. For those looking to sell, some centralized exchanges (CEXs) like Poloniex have indicated that they will support the controversial token.

ETHPoW last traded at $37 on the exchange.

Aave has indicated that it won’t support ETHPoW, meaning that users who are borrowing ETH to get ETHPoW won’t have to settle their debts on the legacy chain.

Hop Yields Spike

Aave isn’t the only lender seeing a surge in demand. Hop Protocol, which allows users to bridge assets across Ethereum’s various scaling solutions, has also seen yields of over 30% on ETH as investors look to borrow the asset wherever there’s liquidity.

Hop Yields

Euler Maxed Out

Euler Finance, another lending protocol with $222M in total value locked (TVL) according to DeFi Llama, has also seen interest rates for ETH hit 100% as investors borrowed all of the ETH available on the lending platform.

ETH Interest Rate and Utilization On Euler

Compound Borrowing Cap

Compound Finance, another of DeFi’s major lenders with $2.37B in TVL, according to The Defiant Terminal, elected to cap the amount of ETH tokens which could be borrowed at 100,000.

This has kept the ratio of borrowed to supplied ETH relatively low considering there’s over 200,000 ETH in Compound’s lending pool. With investors limited in how much ETH they can borrow, the borrowing rate has remained low at about 9%.

Even so, that represents an increase of a little under 6% in the past week as investors have tried to position themselves for ETHPoW in whatever way they can.

ETH Borrow Rate On Compound

Despite all the volatility around interest rates leading up to the Merge, the governance tokens for Compound and Aave have trended downward in the last month. COMP is down about 12% and AAVE is down about 24% in that span, with ETH in between, having lost 16%.