UTC+8 April 21, Aave lifted the freeze on WETH in the Ethereum Core V3 market, allowing users to supply WETH again. Almost simultaneously, Spark strategy head MonetSupply publicly challenged this seemingly market-efficiency-boosting move. The core of the controversy is not just about a parameter being relaxed, but rather whether this defrosting under the existing interest rate model will leave a larger profit space for a few players skilled in cyclic leverage, while shifting liquidity pressure onto ordinary lenders. The key figures that have been disclosed have rapidly heated up the debate — weETH is about 0.5% discounted, ETH borrowing rate cap is 5.15%, and related cyclic strategies can theoretically be amplified to about 14 times leverage, corresponding to about 45% profit.

Aave's Unfreeze of WETH Sparks Controversy

From Aave's perspective, this operation is primarily understood as a quick fix oriented towards efficiency: WETH returning to the supply side means that available collateral and liquidity tools are reopened, thus expanding the capital turnover space at the protocol level. For a lending market that heavily relies on the liquidity of collateral assets, such an action will naturally be interpreted by some users as "restoring normal functions."

However, MonetSupply's judgment is entirely the opposite. In his view, this is not a neutral liquidity repair but rather a reopening of the floodgates for high-leverage strategies at a time when LST/LRT has been widely involved in collateral cycling. In other words, superficially, it appears to be the opening of WETH supply, but in essence, it may reactivate a type of structural arbitrage that is unfriendly to ordinary users.

More critically, as of now, Aave’s official or Guardian's formal response and risk assessment have not yet emerged. Therefore, the public discourse surrounding this defrosting is primarily driven by MonetSupply's public criticism and the community's secondary interpretations, leaving the controversy more suspended at the level of "how risks will be transmitted."

0.5% Discount Unlocks 14 Times Leverage

The strategy path in the controversy is not complex. Users initially deposit weETH and other assets into the protocol as collateral, then borrow WETH. They then exchange the borrowed WETH for more weETH to continue depositing, cycling in this manner to gradually amplify their position. This mechanism itself is not new, but when the asset discount and borrowing interest rates create a calculable arbitrage window, cyclic behavior shifts from “feasible” to “highly incentivized.”

The basis for MonetSupply's calculations is two sets of disclosed figures: first, weETH is approximately 0.5% discounted; second, Aave's Ethereum Core market ETH borrowing rate cap is 5.15%. Under these assumptions, cyclic positions can theoretically be pushed up to approximately 14 times leverage, yielding approximately 45% profit. This is also why Spark believes the issue is not merely an adjustment of ordinary parameters, but rather that “the profit structure has been repriced.”

However, it is crucial to draw the line: 14 times leverage and 45% profit belong to scenario calculations and do not equate to guaranteed returns. It relies on the discount remaining, interest rates being maintained, trade execution being smooth, and market volatility not suffering severe backlash. Once these prerequisites change, high leverage will no longer yield widened arbitrage but amplify vulnerabilities.

High Profits Come with Withdrawal Issues

What Spark is truly warning against is not that “someone will earn high profits” per se, but rather that if these profits are built on continuous cyclic borrowing, they may ultimately concentrate pressure on the aEthWETH liquidity pool. More cyclic positions mean more WETH borrowing demand, and as the borrowing demand continues to accumulate, the most immediate consequence is that the liquidity pool's utilization rate remains high over time.

For ordinary lenders, this risk often does not initially manifest as a price drop but as a worsening withdrawal experience. As the liquidity available for immediate withdrawal in the pool decreases, users, while still appearing as lenders on paper, will quickly feel that their “funds are trapped.” The risk externalities of DeFi are evident here: a few high-leverage strategies gain higher capital efficiency, while the majority of ordinary users may suffer poorer liquidity experiences.

It needs to be clarified that the current exact utilization rate of aEthWETH has not been disclosed. Therefore, this can only be written as a warning about high utilization rate risk, and cannot be stated as already reaching 100% as a settled fact. What is truly lacking right now is not emotional expression but real-time data that can verify whether liquidity pressure is accumulating.

Quick Unfreeze or Bypassing Governance Boundaries

As the discussion intensifies, the controversy has extended from the risk itself to governance procedures. Supporters emphasize efficiency: when the market needs liquidity repairs, a quick unfreeze itself demonstrates governance responsiveness. Critics question another aspect: if adjustments involving systemic risk exposure can be quickly pushed, then where exactly is the boundary between “emergency powers” and “standard governance”?

Currently, regarding whether this operation was bypassing the standard governance process by the Guardian to pursue speed, it remains just a piece of information from a single source and must be treated as unverified content, not to be directly presented as fact. Similarly, two key details still need verification: whether the LTV of WETH after unfreezing remains 0 and whether other on-chain related WETH markets remain frozen. Until these questions receive formal clarification, it is difficult for the outside world to conclude whether this unfreezing is a “cautious relaxation” or “too rapid a relaxation.”

This also elevates the issue from a mere conflict over single protocol parameters to a more typical examination of DeFi governance: when the protocol pursues responsive speed, will transparency, procedural integrity, and risk disclosure be compromised?

Competing Doubts Arise, Official Response Lacking

Dissenting voices have emerged in the community, claiming that the unfreezing of WETH itself is a positive step, even interpreting it as a signal that related risks have been controlled. The problem is that such statements currently belong to a subjective view from a single source, at most representing the judgment of some community participants, and cannot be directly equated with the Aave official position, much less written as a verified fact.

Another line of argument attempts to directly connect MonetSupply's criticism to the competitive relationship between Spark and Aave, implying that there is a stronger profit motive behind this public confrontation. However, this also falls into speculation about motives. Based on existing information, the outside world can only confirm that MonetSupply publicly criticized the unfreezing decision, but cannot deduce his motivations based on this, nor can “competitive attacks” be framed as an established narrative.

In the absence of an official response, debates will naturally be magnified in terms of stance. On one side is the optimistic interpretation of “efficiency first,” while on the other is the cautious warning of “risk externalization”; but before a formal risk statement appears, both voices remain in the pre-gaming phase rather than being definitive conclusions.

Who Will Face the Next Run?

What truly warrants inquiry in this uproar is not who won the war of words on social platforms, but rather whether DeFi governance might inadvertently use public liquidity to subsidize a few high-leverage strategies. If efficiency improvements at the protocol level ultimately manifest only as more frequent and higher-multiplier cyclic borrowing while leaving exit costs to ordinary lenders, then the so-called “market efficiency” needs to be redefined.

The most worthy follow-up will not be emotional expressions but rather several more concrete signals: changes in the utilization rate of aEthWETH, the actual withdrawal experience of ordinary lenders, and whether Aave provides a formal risk statement. These data and actions will determine whether this unfreezing is a successful liquidity repair or a case of underestimated risk redistribution.

If the subsequent market runs smoothly without significant friction in withdrawals, this unfreezing is likely to be classified as a victory for efficiency; but if liquidity pressures rise and ordinary users begin to feel significantly obstructed in exits, it could become a typical example of DeFi's risk externalization. At that point, it may not be the high-leverage players who are the first to be hit, but rather the group of lenders who most believe that the protocol will always maintain liquidity for withdrawals.

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