Spark: The delisting of rsETH in January triggered strong backlash from ETH circular-leveraged users; it is now proven to have been a prudent strategy.

Monetsupply.eth, Strategy Lead of Spark Protocol, posted on X stating that in January this year, low-utilization assets such as rsETH were delisted, and the scope of acceptable collateral and protocol functionalities has been continuously tightened. At the time, this move triggered strong backlash from users employing “ETH circular leverage” strategies. Additionally, Spark has long imposed relatively high maximum interest rate caps on its ETH lending market. Over the past year, Spark has ceded part of its business and revenue to Aave—whose ETH borrowing rates at one point dropped to 10% or lower. However, amid the current market crisis, this strategy has proven more prudent: SparkLend still maintains ample ETH withdrawal liquidity, whereas Aave is experiencing liquidity strain—or even “locking”—across Ethereum mainnet and multiple Layer-2 chains including Arbitrum and Base. Monetsupply.eth further warned that, since ETH serves as the core collateral asset, when market utilization reaches 100%, liquidations of collateral will fail to execute normally. Liquidity exhaustion not only degrades depositors’ experience but may also pose systemic risk. Given Aave’s current liquidity shortage, a 15–20% drop in ETH’s price could trigger significant bad debt accumulation—exacerbated by potential fallout from the rsETH incident.