Aave’s WETH unfreeze hands leverage to whales and illiquidity to everyone else
Spark’s MonetSupply says Aave’s decision to unfreeze its Core WETH market lets LST/LRT whales farm ~45% weETH loops while aEthWETH sits at 100% utilization, trapping regular users.
- Spark strategy director MonetSupply says Aave’s decision to unfreeze its Ethereum Core WETH market is “ill-considered” under 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.
High-octane loops on a dry WETH market
According to his calculations, traders can exploit roughly a 0.5% discount on weETH’s secondary‑market price relative to ETH and an Aave ETH borrowing rate capped around 5.15% to construct recursive long ETH positions with an annualized return profile near 45% when stacked on top of the base staking 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.
Arbitrage for some, exit risk for most
The problem, MonetSupply argues, is that unfreezing WETH under these conditions does nothing to relieve the liquidity stress facing aEthWETH users. “This decision provides arbitrage opportunities without addressing the liquidity tension of aEthWETH,” he wrote, warning that users trying to withdraw WETH or roll over leveraged stables are discovering there is simply no buffer left 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. Combined with 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.
