Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
Over the past few weeks, I’ve covered countless strategies for lending, staking, and providing liquidity with ETH on major DeFi protocols such as Aave, Morpho, Curve, Hop, and Lido. Given The Merge is only hours away, I’ll keep this brief.
But first, let’s be sure you’re caught up on what will be the impact of The Merge!
- Ethereum consensus will move from proof-of-work to proof-of-stake, a long awaited development, in the works for many years. It’s probably the most significant event in the history of crypto since the launch of Ethereum!
- The supply/demand balance of ETH will change considerably as daily issuance of ETH block rewards reduces by ~90% and is no longer rewarded to miners running energy intensive computation to secure the chain. What’s most interesting for those holding ETH as a store-of-value is that we will likely see reduced selling pressure on ETH, having eliminated legacy PoW miners selling most of their tokens to pay for electric bills and hardware costs. Additionally, there’s an expected deflationary issuance of ETH, when the aggregate base fees of transactions burned is greater than the issuance of new ETH each block. For almost a year now, many have used websites like ultrasound.money to simulate the annualized ETH issuance rate post-Merge based on the transactions on-chain. Below, as of the last 30 days, the projected Supply Growth of ETH annually would be 0.1% and during higher congestion, that rate actually becomes negative, meaning more ETH is burned per year than that which is rewarded to validators to secure Ethereum.
- Lastly is a timely benefit given the world we live in. The Ethereum network’s carbon footprint will be reduced by 99.95%!
At the moment, many speculators are piling into a trade where they buy ETH in their Ethereum wallet on-chain, while shorting ETH using perpetuals contracts. This means quite a few have withdrawn their ETH from the likes of Aave or Compound to qualify for the expected ETHPoW snapshot, anticipated to happen within 24 hours of The Merge. To be clear, I am not playing this trade! I believe it will be “a race to the exits” among those holding ETHW (the token of a forked Ethereum chain, expected post-Merge). That said, it has a lot of traders and investors making moves to hold ETH in their wallets on-chain, reducing the supply of ETH on lending markets, driving up utilization, and hence increasing borrowing and supply rates for ETH.
A recent increase in ETH Supply Rate on Aave due to huge withdrawals
A recent increase in ETH Supply Rate on Euler due to huge ETH supply withdrawals
Today, I would still advise most DeFi users to do nothing on-chain, sit back and relax! There’s lots happening and as a DeFi user or ETH holder, there’s nothing anyone needs to do for The Merge. However, in case the itch must be itched to earn yield… I’ll show how I might (but probably won’t!) earn ~70% APY lending ETH on either Euler Finance or Aave.
How to Earn Up to 70% APY Lending ETH During The Merge
Before we get started, please be aware of these risks.
- Smart contract risk in Euler or Aave
- Systemic risk in DeFi composability
- Pegged assets such as stablecoins in Aave pools can de-peg
- Front-end spoof…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
