Ethereum DeFi Nears $125.5 Million Liquidation Threshold by 20%

bitcoin

Amidst the backdrop of a broader global market downturn on Monday, the entire cryptocurrency market experienced a 7% decline in its total market capitalization within a 24-hour period, resulting in a significant loss of approximately $162.3 billion. Concurrently, Ethereum’s leading lending protocols, including Aave, Compound, and MakerDAO’s Spark protocol, witnessed liquidations amounting to $306.9 million. At the time of reporting, Ethereum was trading at $2,450, reflecting a nearly 10% decrease over the past day.

The ongoing international market sell-off, coupled with the profitability surge in lending protocols from liquidations, posed a continued risk to users’ assets subject to further liquidations unless crypto prices stabilized. Data sourced from DefiLlama indicated that around $125.5 million locked in Ethereum smart contracts was perilously close to their liquidation thresholds, representing approximately 20% of the total value.

Within the decentralized finance (DeFi) ecosystem, the estimated USD value of collateral that could potentially face liquidation if Ethereum’s price dropped to $1,956.76 stood at roughly $124.6 million. Liquidations are commonplace occurrences in the crypto market, especially during periods of heightened volatility, where trading venues like Binance and Aave automatically close traders’ positions due to insufficient collateral, preventing further losses and mitigating bad debts.

Over the weekend and into Monday, the collective liquidations across seven centralized exchanges amounted to nearly $1.1 billion within a 24-hour span, with the largest single liquidation recorded on OKX, as reported by derivatives analytics platform Coinglass. Decentralized trading platforms such as Aave and Moonwell not only witnessed record-high liquidation volumes but also recorded substantial profit gains amidst the prevailing market volatility that saw Bitcoin trading below $50,000.

Aave, with its total value locked surpassing that of the next three lending protocols combined, experienced a significant surge in liquidation volume on Monday, totaling $237.2 million solely on its V3 platform, representing more than half of the total collateral ever liquidated on Aave’s V3. Moonwell, the third-largest lending protocol on Base, observed an all-time high in total liquidated value of approximately $3.6 million on Monday, leading to a record single-day profit of about $134,000 through its 3% fee structure per liquidation.

The resilience of protocols like Aave during market stress was highlighted by founder Stani Kulechov, noting the protocol’s ability to secure $21 billion worth of value across 14 active markets on various layers. Moonwell’s founding contributor, Luke Youngblood, emphasized the operational advantages of on-chain finance protocols like Moonwell, which operate seamlessly 24/7 on Ethereum without the disruptions often seen in traditional finance platforms during volatile market conditions. Youngblood underscored the robustness of Moonwell’s infrastructure, hosted across numerous global data centers, ensuring uninterrupted access regardless of user demand, signaling a promising future for on-chain finance in global financial markets.