Spark Strategy Director: Aave unfreezing the WETH market may allow LST/LRT holders to earn extremely high returns, further worsening the experience for ordinary users.

Mars Finance reports that Spark’s strategy lead monetsupply.eth tweeted criticizing Aave’s decision to unfreeze the Ethereum core WETH market, saying that this decision does not take sufficient account of current conditions. After unfreezing, LST/LRT holders will be able to build looping positions with extremely high returns, resulting in a persistent lack of liquidity for aEthWETH and making it difficult for ordinary users to withdraw normally.

Taking the weETH loop as an example: weETH is currently trading at a 0.5% discount; if it returns to par value within one month, the implied yield is about 6%. Combined with baseline staking rewards, total returns can reach 8%. Meanwhile, Aave’s core ETH borrowing interest rate cap is 5.15%, so loopers can earn an additional 2.85% yield. weETH can be used with up to 14x leverage, bringing the maximum final annualized return to approximately 45%.

He believes that, in essence, this provides a “free lunch” for LST/LRT loopers, while further worsening the user experience for aWETH holders and stablecoin borrowers.