Spark's Head of Strategy: ETH Market Faces Liquidity Risk Due to Potential 10-15% Cut in rsETH Loans

Spark's Head of Strategy, monetsupply.eth, stated in an article on the X platform that the situation is entering a more dangerous phase as the stablecoin market begins to lack liquidity. He believes that approximately 16.5% of the ETH market is backed by rsETH. If rsETH-backed loans suffer losses across the mainnet and external chains, emode could face a 10% to 15% slashing, leaving 2% to 3% for ETH suppliers to smooth out the umbrella structure. ETH suppliers naturally tend to exit as quickly as possible to avoid this risk, thus locking utilization at 100%. Lending rates are insufficient to incentivize repayment of unrelated LST cycles (wstETH, weETH) to release liquidity. Because ETH cannot be withdrawn, users who borrowed stablecoins like USDT and used ETH as collateral cannot close their positions even when stablecoin lending rates rise, cutting off a typical incentive mechanism for maintaining market health. Two unhealthy incentives are currently causing market utilization to lock at 100%: 1) ETH holders are unable to close positions to maintain a healthy LTV, and liquidators are unable to atomically withdraw or sell collateral, potentially leading to bad debts due to a drop in ETHUSD price. 2) Users supplying USDT tend to maximize borrowing of other stablecoins to exit their holdings; this position is currently generating positive returns (temporarily), thus the exit cost is low; if conditions worsen, at least 75% of the position value can be recovered. The bottom line is that these pooled/re-staking lending markets must maintain liquidity at all costs to function properly. The recent reduction in Aave's maximum lending rate by Slope2 is having a negative impact and significantly increases the risk of cascading market failure.