Spark’s MonetSupply claims that Aave’s unfreezing of its Core WETH Market allows LST/LRT Whales to farm up to 45% loops, while aEthWETH is at 100% usage and traps regular users.
The following is a summary of the information that you will find on this page.
- Aave, the director of strategy at MonetSupply, says that Aave’s decision to defroze its Ethereum Core market WETH is a mistake. “ill-considered” Current liquidity conditions.
- With aEthWETH utilization at 100%, he warns that high‑leverage weETH loops chasing ~45% APY will trap normal depositors and stablecoin borrowers trying to exit.
- The move, he argues, hands out arb opportunities without fixing aEthWETH liquidity, further degrading conditions for regular users already struggling to refinance.
Aave (AAVE) has decided to unfreeze its Ethereum Core WETH market just as liquidity is at its tightest, drawing sharp criticism from Spark’s strategy director MonetSupply. In a post on X, he called the move “quite ill‑considered,” arguing that under the current interest rate model, LST and LRT holders can spin up aggressive circular leverage loops using assets like weETH while ordinary users are effectively locked in.
Loops with high-octane on a WETH dry market
According to his calculations, traders can exploit roughly a 0.5% discount on weETH’s secondary‑market price relative to ETH You can also read about the advantages of using Aave ETH borrow rate capped to around 5.15% can be used for recursive long ETH position with a return profile that is near 45% annually when stacked onto the staking base yield. With the aEthWETH market already sitting at 100% utilization, every fresh loop tightens the squeeze on exit liquidity for plain‑vanilla depositors and borrowers.
MonetSupply argues the unfreezing of WETH at these conditions will not alleviate liquidity issues for aEthWETH customers. “This decision provides arbitrage opportunities without addressing the liquidity tension of aEthWETH,” He wrote that when users try to withdraw their WETH, or rollover leveraged horses they find there’s no buffer in the pool.
Recent comments from the Spark strategist on related ETH‑market fragilities flagged how similar dynamics can spiral: once utilization is pinned at 100%, suppliers lose incentives to stay, while borrowers lose room to deleverage, raising the risk of stuck positions and cascading liquidations if rates or collateral prices move against them. Combining post‑Kelp DAO nerves and elevated demand for on‑chain ETH liquidity, Aave’s decision to reopen the throttle on WETH looks, in his view, less like restoring normalcy and more like inviting sophisticated loopers to farm a basis trade atop an already strained market.
If those incentives persist, the likely outcome is a familiar split: whales and structured funds capturing leveraged carry via weETH loops, while retail depositors and stablecoin borrowers face rising odds of being trapped in a market where the exit door is technically open—but functionally blocked by 100% utilization.
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Source: crypto.news
