According to Spark’s MonetSupply, Aave’s reopening of its WETH market allows large holders of liquid staking tokens (LST/LRT whales) to profit significantly – around 45% – from looping weETH. Meanwhile, aEthWETH is fully used, meaning regular users are unable to access it.

Summary

Aave has reopened its market for Wrapped Ether (WETH) on Ethereum at a time when there’s very little available, which has sparked criticism from MonetSupply, a director at Spark Protocol. In a post on X (formerly Twitter), MonetSupply called Aave’s decision poorly timed, explaining that the current interest rate system allows holders of Liquid Staking Tokens (LST) and Liquid Restaking Tokens (LRT) to create risky, self-reinforcing leveraged positions with assets like weETH, while regular users are limited in what they can do.

High-octane loops on a dry WETH market

As I understand it, there’s a potential opportunity here with weETH. By taking advantage of a small price difference – around 0.5% cheaper than regular ETH on some exchanges – and borrowing ETH on Aave at a rate that’s currently around 5.15%, I could build a leveraged position. The projections show this could potentially generate around 45% annual returns *on top* of the standard staking rewards. However, the market for borrowing and lending weETH is already completely full, meaning it’s getting harder for regular users to deposit or withdraw funds, and each new leveraged position makes that situation even tighter. It’s a potentially profitable strategy, but it’s also increasing the risk for those who aren’t participating in this loop.

Arbitrage for some, exit risk for most

According to MonetSupply, simply releasing the WETH won’t solve the liquidity issues for aEthWETH users. He explains that this move creates opportunities for profit from price differences but doesn’t ease the core problem: there’s no available WETH left in the pool for people trying to withdraw their funds or maintain their leveraged positions.

A Spark strategist recently warned about potential problems in the Ethereum market. They explained that when usage reaches its limit, those providing the service may leave, and borrowers may struggle to reduce their debt. This can lead to frozen funds and a chain reaction of liquidations if interest rates or collateral values change. Considering recent concerns after the Kelp DAO and high demand for ETH on the blockchain, Aave’s decision to increase WETH availability doesn’t seem like a return to normal, but rather an invitation for advanced traders to exploit existing market pressures.

If these financial advantages continue, we’ll likely see a repeat of the current situation: large investors and organized funds will profit from complex strategies using wrapped Ethereum, while everyday depositors and those borrowing stablecoins will increasingly find themselves unable to withdraw their funds. While technically possible to exit, the system will be completely maxed out, effectively preventing withdrawals.

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2026-04-21 22:09