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MakerDAO, the organization behind the DAI stablecoin, has temporarily suspended the depositing and minting of DAI on the crypto lending platform Aave. The suspension came after Maker (MKR) holders voted to disable the Aave DAI Direct Deposit Module (D3M) on June 16.
The proposal got a 64% approval rate, allowing Maker to implement the change on June 17. According to Maker,
The @AaveAave Target Borrow Rate (bar) will be set to 0.
This change might intuitively suggest that the Aave D3M will utilize its full debt ceiling.
It is a pre-programmed state in the D3M code that will set the vault to unwind only.
— Maker (@MakerDAO) June 15, 2022
By disabling Aave’s D3M, Maker stopped Aave traders from borrowing DAI against staked Ethereum (stETH), which lost its ETH peg. In so doing, Maker aims to reduce its exposure to embattled crypto lending platform Celcius Network.
Explaining why it was necessary to halt the borrowing on DAI against stETH, Primoz, a member of the Risk Core Unit Team at MakerDAO, said:
The reason we believe this is risky is because out of 200m DAI borrowed on Aave Ethereum v2, 100m DAI is being borrowed by Celsius and collateralized mostly by stETH.
MakerDAO Turned Down Aave’s Proposal
Initially, Aave had proposed that MakerDAO freeze the stETH market and increase the token’s withdrawal threshold from 81% to 90%. However, MakerDAO considered this approach an unacceptable risk.
Primoz noted that the 90% liquidation threshold could have some benefits against stETH/ETH de-peg, but it presents a high risk for users borrowing stETH-collateralized stablecoins. Primoz added that this option is especially risky considering Celsius, which has large stETH holdings, is under stress.
This news comes as Celsius continues fighting to maintain solvency. It has been a week since the platform paused withdrawals, swaps, and transfers due to liquidity issues. However, the Celsius team is yet to announce a solution despite reiterating its intentions to prioritize the community’s interests.
.@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2
— Celsius (@CelsiusNetwork) June 13, 2022
Should Celsius face insolvency, it would likely sell its stETH to meet margin calls. This would see stETH de-peg from ETH even further, making it hard for lenders to recover their money. According to data from CoinMarketCap, stETH is currently changing hands at $1,051.77. On the other hand, ETH is trading at $1,118.26.