Spark Strategic Lead: rsETH Security Incident Risk Spillover Intensifies, DeFi Market May Face Cascading Liquidation Crisis
Odaily reported that monetsupply.eth, the Strategic Lead of the Spark Protocol, posted on platform X stating that as stablecoin market liquidity begins to tighten, the current rsETH security incident may be entering a more dangerous phase. Approximately 16.5% of the ETH market is supported by rsETH. If related losses are averaged across the mainnet and cross-chain environments, rsETH collateralized loans could face a 10%-15% discount under eMode. Even after risk buffers are depleted, ETH depositors may still bear 2%-3% of residual losses. Under this expectation, ETH providers tend to exit as soon as possible, causing market utilization to be locked at 100%, while borrowing rates are insufficient to incentivize leveraged positions like wstETH and weETH to actively deleverage and release liquidity. At the same time, as ETH cannot be withdrawn, users who borrowed stablecoins like USDT using ETH as collateral also find it difficult to close positions promptly. Even if stablecoin borrowing rates rise, the market's original incentive mechanisms have been broken.
monetsupply.eth further pointed out that in the "locked" state of 100% utilization, the DeFi market may face a cascading liquidation crisis and exhibit two major distorted incentives: First, ETH holders cannot adjust their health collateral ratios, and liquidators cannot extract and sell collateral assets. If ETH prices fall, bad debt could accumulate rapidly. Second, stablecoin depositors, on the contrary, have an incentive to achieve a "de facto exit" by lending out other stablecoins. While positive yields are still available, they can lock in approximately 75% capital recovery space at a lower cost. For lending markets reliant on liquidity pools and re-collateralization, liquidity must be prioritized. However, Aave's recent lowering of the maximum borrowing rate (slope2) cap is weakening deleveraging incentives, significantly increasing the risk of chain failures in the market.
