Crypto Beginner

Merge-related airdrop expectations are sucking liquidity out of DeFi

Merge airdrop

Many ETH owners are ditching DeFi liquidity pools for wallets relevant to the Ethereum mainnet. This has to do with the fact that ETH PoW is expected to emerge as an alternative to the Vitalik-backed Ethereum network after the Merge, Ethereum’s upcoming upgrade. People are eyeing the fork’s ETHW tokens and are looking forward to a potential ETHW airdrop.

A few days ago, Bobby Ong, the influential founder of CoinGecko, even put out a Twitter post that spelled out what users would need to do to benefit from such an airdrop.

Moving ETH held to a non-custodial wallet was his first suggestion. Unwrapping all wETH from DEXs and removing liquidity from DeFi protocols used to stake your ETH was another idea Ong offered. Ong also recommended borrowing ETH from the likes of Compound and AAVE. The borrowed ETH could be returned upon receiving the airdrop.

Why the ETHW airdrop is all the craze right now

Each ETHW token is expected to be valued at 2.5% of the ETH price at the time. ETH is currently holding steady at $1,666. So if the price of one ETH touches $2,000 post-merge, an ETHW token will cost close to $50.

However, the final price of the Proof-of-Work token will depend on when the Merge actually takes place.

How is the airdrop news impacting the DeFi space?

Airdrop revelations have made people take out their staked and wrapped ETH from pools, Decentralized Exchanges (DEXs), and protocols. Plus, people are even borrowing ETH from the lending protocols and furthering the liquidity exodus.

However, protocols have started responding to this development. Aave has issued a governance proposal to pause pre-Merge ETH lending. Compound, on the other hand, has set a 1,00,000 ETH borrowing limit for now. Additionally, if the utilization reaches 100% (of the liquidity pool lent out), the Compound will begin to charge 1,000% interest on the value lent.

FAQs

What is a DeFi exchange aggregator?

A decentralized finance (DeFi) exchange aggregator is a platform or service that helps users find the best prices for their trades across multiple decentralized exchanges (DEXs). In the world of DeFi, decentralized exchanges operate without a central authority and allow users to trade cryptocurrencies directly with one another using smart contracts.

What is DeFi liquidity providing?

DeFi liquidity providing, often referred to as liquidity provision or liquidity mining, is a concept within the decentralized finance (DeFi) space where users contribute their funds to a liquidity pool on a decentralized exchange (DEX) or lending platform. Liquidity provision plays a crucial role in enabling the smooth functioning of these platforms by facilitating the execution of trades and loans.

What is a liquidity aggregator?

A liquidity aggregator in the context of decentralized finance (DeFi) is a platform or service that combines liquidity from multiple decentralized exchanges (DEXs) or liquidity sources to offer users improved trading efficiency and better prices. The primary goal of a liquidity aggregator is to connect users with the most favorable liquidity across various markets, enabling them to execute trades with reduced slippage and access a deeper pool of available funds.

What is the best DeFi aggregator?

Determining the “best” DeFi aggregator can depend on various factors, including individual preferences, specific needs, and the current features offered by different platforms. Additionally, the DeFi space is rapidly evolving, and new projects may emerge with innovative solutions. As of my last knowledge update in January 2022, I don’t have real-time information on the latest developments in the DeFi sector.

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