How degens are planning to profit from The Ethereum Merge
Defi degens have found themselves a new scheme.
There're rumors that when Ethereum goes through its Merge update, copies of the old blockchain will be made.
(To serve those who prefer the old way of doing things).
This isn't new, it happened with Bitcoin's 2017 update, which saw Bitcoin Cash, Bitcoin Gold, and Bitcoin Diamond, pop up as a result.
To pull users over to these copied Ethereum blockchains, the folks running them may choose to run an airdrop and gift free tokens to any wallet holding Ethereum (the more ETH they hold, the bigger the gift).
So here's the scheme:
Folks are borrowing TONS of ETH, in the hopes of profiting from the airdrop, from lending platforms like Aave (who have had to pause Ethereum borrowing due to demand).
Here's why it's a problem for lenders:
If all of the ETH is lent out, it means anyone that has given Aave their Ethereum to lend out on their behalf, will no longer be able to get their money out.
Here's why it's risky for borrowers:
The more that is borrowed, the higher the interest rates for all ETH loans become on the platform.
It's estimated that if 100% of Aave's supply of Ethereum is lent out, the borrowing rate could increase to 1000%
Meaning borrowers that took out, say, a $100K loan at 5% interest ($5k per year) a few days ago, would all of a sudden be paying $1M per year in interest.
And even if they were just going to hold the loan for a few weeks, they would still be paying ~19K in interest per week.
(Potentially destroying any profits from an airdrop).
Oooft!
