Thomas Daniels
Over the last 24 hours, collateral exceeding the value of $5.4 million has been liquidated on various decentralized finance (DeFi) platforms. Ethereum faced the harshest impact, with its liquidations forming $4.2 million of the aggregate amount. Parsec’s analysis suggests a looming risk of further instability, indicating that a dip in Ethereum’s price to $3,008 could set off additional liquidations worth $24 million.
Central to these liquidation events are on-chain derivatives trading platforms, including GMX, Kwenta, and Polynomial, which have collectively witnessed liquidations surpassing $52 million just within the last day. In the DeFi sector, liquidation implies the forced sale of assets that were put up as loan security. These assets are sold by the platforms or protocols when the market price of the collateral asset plummets, often due to the volatile nature of cryptocurrency prices. Specifically in the case of DeFi lending, loans typically require more collateral than the loan value to mitigate this volatility. But, sharp declines in the market price, as seen with Ethereum (ETH), prompt automatic selling of the collateral by the platform to repay the loan, frequently at a diminished market value, posing loss risks for the loan recipient.
Currently, Ethereum’s trading value is around $3,338, reflecting a 15% decrease over the previous week. Additionally, the total market capitalization of cryptocurrencies has fallen by 3.5% today, following a significant liquidation wave that comes after a rally lasting a month.
