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.
Chart of the Day - Ethereum Classic Achieved a New ATH Hash Rate
Due to Ethereum's upcoming merge, scheduled to happen next week on September 15, miners have already begun switching to other Proof of Work cryptocurrencies, mostly to Ethereum Classic. As a result, ETC hash rate has significantly risen over the past two months and reached a new ATH of 46.15 TH/s, and it's price reacted to the trend with growth.
As of this writing,
(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.
In terms of technical outlook, Bitcoin (BTC) has broken the stagnant phase of the past 9 days and plunged below two support zones, one was formed between the opening price on a daily candle last Monday ($19,558) and the monthly support of $19,858, while the other was formed between a daily support level of $18,975 and the 141.4% Fibonacci extension level ($19,100) measured from Aug. 13 - 19.
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.
Ether (ETH), on the other hand, was up 4% at one point during early Tuesday trading, before plunging to $1,558 (-3.6%) on the day, closing below the support zone formed between the weekly support level of $1.611 and 12-Day EMA ($1,581).
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.
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.
Buzzes of Yesterday
#Ethereum Bellatrix Upgrade
Successfully Launched On Tuesday
Launches Its Own Lending Market
Industry Raised $780M
#Miners Hive and Hut 8
Seek To Shift Computing Power to Cloud Computing and AI
Withdraws $45M From Curve and Convex
#Russian Finance Ministry
Working On Stablecoin Platforms
Ethereum activates Bellatrix upgrade as last step before The Merge
More Than 94k ETH Staked Ahead Of Ethereum Merge
Cardano Hits Peak Network Performance Ahead of Vasil Mainnet Launch
Frax Finance launches Fraxlend, its own borrowing and lending market
NFTs & Metaverse
Reddit NFT avatars selling for a premium on OpenSea
Harry Styles and Adele's record label files trademarks for NFT-backed media
X Marketplace's new platform streamlines the licensing of NFT IPs
Chinese Metaverse Industry Raises $780 Million in Funding
NFT and metaverse trademark applications for 2022 have already eclipsed 2021's total
Miners Hive Blockchain Technologies, Hut 8 Look to Cloud Computing, AI Ahead of The Merge
Business & Finance
Franklin Templeton launches metaverse ETF for European investors
DBS Singapore Announces Crypto Expansion for Wealthiest Clients
Former ING Crypto Lead To Helm Investcorp’s First Blockchain Fund
21Shares’ Parent Company Valued at $2B After Marshall Wace-led Fundraise
Fuel Labs raises $80 million for modular execution layer, touting superior speed
3AC withdraws $45 million from Curve and Convex
Governments & Policies
Russia's Finance Ministry is working on stablecoin platforms to avoid cross-border dollar settlement
Crypto assets are no longer niche and regulators need to catch up — IMF
Exiled Myanmar democratic leaders want to issue CBDC to fund the revolution
Crime & Order
Law firms seek to replace Roche Freedman as lead counsel in Tether case
Alleged Bitcoin Launderer’s Lawyer Seeks Prisoner Swap With Russia
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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