with stablecoin markets beginning to become illiquid, the situation is now entering a more dangerous stage imo to break down the driving factors: the ETH market is ~16.5% backed by rsETH, and rsETH backed loans could see up to 10-15% haircut in emode if losses are socialized equally on mainnet & external chains, leaving 2-3% residual haircut for ETH suppliers after wiping out umbrella ETH suppliers are naturally incentivized to get out ASAP to avoid this, so utilization is pinned at 100%, and borrow rates are not high enough to incentivized repayment of unrelated LST loops (wstETH, weETH) to free up liquidity because it is impossible to withdraw ETH, users borrowing stables like USDT against ETH collateral cant unwind their position even when the rates for stablecoin borrowing start to spike, which severs the typical incentives scheme keeping these markets healthy now we have 2 unhealthy incentives based on the markets becoming locked at 100% utilization 1) ETH holders cannot unwind their positions to maintain healthy LTVs, and liquidators cant withdraw/sell collateral to close positions atomically, meaning that ETHUSD price drop could potentially cause bad debt 2) users supplying USDT have a perverse incentive to max-borrow other stablecoins as a way of exiting, the position has positive carry (for now) so the optionality has low cost, while if conditions worsen they can get at least 75% of their position value out of the market bottom line is, for these pooled/rehypothecated lending markets to function properly, liquidity must be preserved AT ALL COSTS. recent slope2 changes nerfing Aave's max borrow rates are having a negative effect and significantly increasing the risk of cascading market failure