ETH Leverage Demand Plummets After rsETH Hack, Analyst Data Reveals

On-chain data reveals a sharp decline in Ethereum (ETH) leverage demand following the recent hack of the rsETH LayerZero bridge, with utilization rates falling below 90% and borrowing costs dropping to their lowest levels in months.

Borrowing Rates and Deposits Tumble

According to on-chain analyst Tom Wan, ETH utilization on major lending platforms has slipped under the 90% threshold, pushing the annualized borrowing rate (APY) down to just 1.9%. The decline follows the exploit of the rsETH bridge, which triggered a wave of withdrawals from two of the most popular liquid staking derivatives used in leverage strategies: wstETH and weETH.

Wan noted that deposits of wstETH decreased by approximately $1.2 billion, while weETH deposits fell by $1.76 billion. These assets are commonly used in looping leverage strategies, where traders repeatedly deposit and borrow against their staked ETH positions to amplify returns. The sudden drop in deposit supply reduced demand for borrowing, compressing rates.

Profitability Returns for Leverage Strategies

Despite the broader downturn, Wan pointed out that the profitability of looping leverage strategies based on wstETH and weETH has recently turned positive again. This shift suggests that the cost of borrowing has fallen enough to make these trades viable once more, even with reduced deposit volumes.

The potential recovery of ETH leverage demand is now a key point for market participants to watch. If traders begin to re-enter these positions, it could signal a normalization of DeFi lending activity and a restoration of confidence in the affected protocols.

Market Speculation on Capital Rotation

Wan also highlighted speculation that some funds may be moving to alternative lending protocols such as Spark and Morpho. These platforms offer different risk parameters and may attract users seeking more stable environments after the rsETH incident. If confirmed, this capital rotation could reshape the competitive landscape of DeFi lending, with implications for liquidity distribution and yield dynamics across the ecosystem.

Conclusion

The rsETH hack has clearly disrupted ETH leverage markets, but the return of positive carry for wstETH and weETH strategies suggests the damage may not be permanent. Traders and analysts will be watching closely for signs of renewed demand and potential shifts in capital flows to alternative protocols. The coming weeks will reveal whether this is a temporary setback or a structural change in how leverage is deployed on Ethereum.

FAQs

Q1: What caused ETH borrowing rates to drop so sharply?
The drop was primarily triggered by the rsETH LayerZero bridge hack, which led to large withdrawals of wstETH and weETH deposits — reducing the supply available for borrowing and pushing down demand and rates.

Q2: Are leverage strategies on Ethereum still profitable after the hack?
Yes. Analyst Tom Wan reports that looping leverage strategies based on wstETH and weETH have recently turned profitable again, as borrowing costs have fallen enough to make the trades viable despite lower deposit volumes.

Q3: Which alternative lending protocols might benefit from this situation?
Spark and Morpho have been mentioned as potential beneficiaries, as some market participants speculate that funds could rotate to these platforms seeking different risk profiles and more stable lending conditions.