Spark announced on September 14 the closure of the lending instance SparkLend deployed on the Gnosis Chain. Following the execution, all outstanding loans on this instance will immediately enter a liquidatable state, and users must repay and withdraw collateral before the deadline.

This is not a sudden shutdown but the final step of a phased exit. In February of this year, Spark froze all new deposits and loans on the Gnosis market and unified the reserve factor to 50%. The assets named at that time included WXDAI, sDAI, WETH, wstETH, EURe, USDT, USDC.e, GNO, and USDC. Existing positions could still be retained, and the execution on September 14 changed the status from "new deposits frozen" to "existing positions can be liquidated."

SparkLend is a fork of Aave V3 and was launched in September 2023 as the first cross-chain deployment on Gnosis. The governance cited low usage of this instance, minimal reserve factor income, and ongoing operational and risk monitoring costs. Public data previously showed that the vast majority of the protocol's supply and borrowing was concentrated on Ethereum, with Gnosis accounting for less than 1% for a long time, representing a high-maintenance, low-contribution marginal market.

The shutdown mechanism operates according to existing liquidation rules: a health factor below 1 can be called for liquidation by a third party, with a health factor between 0.95 and 1 allowing for a maximum of 50% of debt to be liquidated, and if it drops to 0.95 or below, it can be fully covered at once, with liquidators receiving discounted collateral. Therefore, positions that do not actively repay after the deadline do not need to wait for prices to drop; the protocol parameters themselves will turn the entire pool of positions into targets for liquidation.

At the same time, the focus of products has shifted back to the main market. Recently, Spark upgraded its lending products to an isolated market based on Morpho and continues to obtain liquidity from stablecoin issuance as a sub-DAO of Sky. Shutting down the Gnosis instance is a move to shrink the multi-chain presence to a level that can generate reserve income and collaborate with institutional custody and isolated markets on the Ethereum mainline.

In market mechanics, this is an active contraction rather than a run-driven one. The seller is the protocol governance, which changes the parameters to shift the marginal market from "available for borrowing and lending" to "only an exit channel remains"; the buyers are borrowers who must raise repayment assets within four days and professional liquidation bots waiting for liquidation discounts. Funds move from collateral and debt on Gnosis to stablecoins or base assets used for repayment, which are then withdrawn off-chain or migrated back to Ethereum. The beneficiaries are Spark's risk budget and operational bandwidth; the pressure is on leveraged accounts still tied to this instance and the local stablecoin circulation in Gnosis that relies on this pool's depth.

On-chain, after the freeze in February, new traffic has stopped, and the focus on September 14 is whether existing debt has been repaid within the window. Unpaid portions will concentrate into the liquidation queue after execution, with liquidation bonuses becoming a short-term arbitrage entry.

Source: Public Information