Spark's strategic director: The ETH market faces liquidity risks due to a potential 10% to 15% reduction in rsETH loans
The strategic director of Spark, monetsupply.eth, posted on platform X that as the stablecoin market begins to lack liquidity, the situation is entering a more dangerous phase. I believe that the ETH market is about 16.5% supported by rsETH, and if the loans supported by rsETH experience losses shared between the mainnet and external chains, there may be a 10% to 15% reduction in emode, leaving a remaining 2% to 3% reduction for ETH suppliers to smooth out the umbrella structure.ETH suppliers naturally tend to exit as soon as possible to avoid this risk, so the utilization rate is locked at 100%, and the borrowing rates are insufficient to incentivize the repayment of unrelated LST cycles (wstETH, weETH) to release liquidity. Since users cannot withdraw ETH, those who borrow stablecoins like USDT and use ETH as collateral cannot close their positions even when stablecoin borrowing rates rise, cutting off the typical incentive mechanism to maintain market health.Currently, two unhealthy incentives are causing the market utilization rate to be locked at 100%: 1) ETH holders cannot close their positions to maintain a healthy LTV, and liquidators cannot atomically withdraw or sell collateral, which may lead to bad debts if the ETHUSD price falls. 2) Users supplying USDT, in order to exit their holdings, tend to maximize borrowing of other stablecoins, which is currently generating positive returns (temporarily), thus the exit cost is low; if conditions worsen, they can at least recover 75% of the position value.The bottom line is that these pooled/re-staked lending markets must maintain liquidity at all costs to operate normally. The recent weakening of slope2 against Aave's maximum borrowing rate is having a negative impact and significantly increasing the risk of failure in the yield market.