[Base] Spark USDC Morpho Vault - Onboard cbETH and ETH - November 3, 2025

Spark's Operational Facilitator has placed a proposal into the voting system on behalf of nested contributor Phoenix Labs.

Review

The Spark community can hereby express support or opposition to the following changes, as described by the author of the proposal:

Coinbase is expected to launch support for ETH and cbETH pools on Morpho Base instance within their onchain loans product in the near future. Onboarding these pools will allow Spark to generate incremental revenue from users borrowing against these assets, in addition to our existing BTC backed loans activity.

ETH is the native token of the Base L2 and has very high liquidity onchain via Uniswap and Aerodrome, among other platforms. Both ETH and USDC also offer native deposit and withdrawal across a range of centralized exchanges on Base including Coinbase itself. The liquidity of ETH vs USDC on Base is robust and nearly on par with the onchain liquidity available on mainnet. The pool LTV of 86% is in line with other Morpho pools on mainnet that have operated successfully over the past several years, as well as the latest updated LTV on SparkLend. This pool uses Chainlink oracle price for ETHUSD, which is subject to the project’s 4 of 9 multisig for admin upgradability on Base.

cbETH is a custodial liquid staking token issued by Coinbase, representing ETH staked via the Coinbase infrastructure. The token can be minted and redeemed via Coinbase, and is subject to standard Ethereum staking queue for redemptions. The cbETH token is issued on both Base and Ethereum, and is also available for trading via Coinbase orderbooks. The primary liquidity venues for the asset are Aerodrome and Coinbase. Onchain liquidity depth is only robust up to roughly $2.5-3 million, after which point it begins to fall off sharply. Similarly, there is only around an additional $2-3 million in resting buy side liquidity on Coinbase before prices fall off sharply. Therefore, liquidity to support collateral liquidations primarily relies on time based arbitrage of purchasing cbETH at a material discount and then redeeming it for enhanced yield.

Because cbETH has relatively high trust being issued by Coinbase, we anticipate that there would be significant arbitrage interest at a low enough price (high enough implied yield). If we assume a validator queue of 50 days (the highest seen recently following the Kiln key rotation) and 5% discount of cbETH vs NAV, this would result in a 45% yield to maturity, which is quite attractive over that timeframe. However, the potential for material price dislocations reduces the margin of safety for liquidations of this pool, which already has just a 10% buffer before liquidations begin to incur losses given the 86% LLTV and 4.2% liquidation incentive.

The cbETH pool uses an aggregate oracle of cbETH/ETH, ETH/USD, and USDC/USD to determine a cbETH/USDC price. All individual feeds are provided by Chainlink and subject to their standard contract ownership. While use of market pricing for cbETH can potentially reduce risk by allowing the market to more rapidly liquidate positions during a price divergence event, the relatively weak liquidity for cbETH may also allow for flash crashes and liquidating positions at arbitrarily low prices, which could incur bad debt.

Overall, we find the cbETH market to present an acceptable risk profile to support allocation, but note that it is considerably less robust and safe vs ETH or cbBTC markets. This will be particularly true as the size of the market scales, unless onchain and offchain liquidity for cbETH scale in tandem. We recommend setting a low pool supply cap for this asset to account for the increased peg and liquidity risks, and also plan to implement a rate targeting framework that demands a higher risk premia to lend against cbETH vs cbBTC or ETH.

Parameter summary:

• Spark Blue Chip USDC Vault
  • ETH/USDC 86% LLTV Pool
    • Pool id: 0x8793cf302b8ffd655ab97bd1c695dbd967807e8367a65cb2f4edaf1380ba1bda
    • Supply cap: 1 billion
  • cbETH/USDC 86% LLTV Pool
    • Pool id: 0x1c21c59df9db44bf6f645d854ee710a8ca17b479451447e9f56758aee10a2fad
    • Supply cap: 50 million

The proposed Spark Artifact changes can be found in the following pull request: https://github.com/sky-ecosystem/next-gen-atlas/pull/106

Outcomes

• If "For" receives the most votes, the proposal will be approved. The associated pull request will be merged into Spark's artifact. When required, the listed changes will proceed to implementation by the relevant actors.
• If "Against" receives the most votes, the proposal will be rejected. No changes will be implemented.