In anticipation of this, speculators in the DeFi world are now borrowing a lot of Ethereum, in the hope that they will soon be able to sell both tokens. Etheruem borrowing is so excessive that some protocols try to contain it. An example of this is Aave, which has even stopped borrowing Ethereum due to high demand. You may wonder to what extent this is a decentralized lending platform, but that aside.
Earn 10.54 percent on your Ether
At the moment, users at Aave even get 10.54 percent on an annual basis if they place their Ethereum there. Like Aave, Compound has also decided to limit its borrowing from Ethereum as much as possible. Users can now borrow up to 100,000 Ethereum in total. It is dangerous if loan positions get into trouble and there is no more collateral available in the system.
When all Ethers are lent, people who want to liquidate positions will not be able to close them. Which can mess up a DeFi protocol as a whole and even make it insolvent. In that regard, it’s no surprise that all protocols are trying to curb Ethereum’s excessive borrowing a bit. After all, we all know what happens when trust in a protocol is lost, just look at Celsius or other centralized lending platforms.