Spark Protocol's January delisting of rsETH proves prudent as Aave faces ETH liquidity crisis

Gate News message, April 19 — Spark Protocol’s strategy lead monetsupply.eth stated that the protocol delisted low-usage assets including rsETH in January and has continued tightening collateral and feature scope. The move initially sparked strong backlash from ETH leverage users but has since proven to be a prudent strategy amid current market turmoil.

Spark has maintained higher interest rate caps on ETH lending compared to competitors, ceding some business and revenue to Aave, whose ETH borrowing rates once dropped to 10% or below. This conservative approach has paid off as SparkLend continues to maintain sufficient ETH withdrawal liquidity, while Aave is now experiencing liquidity strain and even “lockups” across Ethereum mainnet, Arbitrum, and Base.

monetsupply.eth warned that since ETH is a core collateral asset, when utilization reaches 100%, collateral liquidations cannot execute normally, creating systemic risk. Under Aave’s current liquidity constraints, a 15%-20% drop in ETH price could accumulate significant bad debt, potentially compounded by lingering effects from the rsETH delisting.