On Monday, the price of Ethereum’s ETH token faced significant turmoil, leading to potential risks for a substantial decentralized finance (DeFi) loan on the lending platform Sky, previously known as Maker. This alarming trend has raised concerns among investors and enthusiasts alike.
The borrower involved in this precarious situation secured a loan of $74 million denominated in DAI stablecoin by pledging 65,680 ETH as collateral. At market highs earlier in the day, this collateral was valued at nearly $130 million, as indicated by a Sky vault data dashboard.
However, amid a prevailing downturn in crypto asset prices, ETH experienced a nearly 10% decline throughout the day, dropping to $1,820. This downturn placed the loan dangerously close to its liquidation threshold, which hovers just above $1,900.
Blockchain data provided by Debank reveals that the borrower proactively withdrew 2,000 ETH, approximately valued at $4 million based on current market prices, from crypto exchange Bitfinex. Subsequently, these assets were deposited back into the Maker vault, effectively enhancing the collateral backing the loan to stave off imminent liquidation.
Following this strategic deposit, the liquidation threshold for the loan adjusted to approximately $1,875 per ETH. Yet, this figure still exceeds Ethereum’s latest market price, indicating continued risk.
For further insights on the situation, please refer to this article: Ether Came Dangerously Close to Massive Liquidation. Here Are Some Levels to Watch.
This precarious situation is not isolated; various other DeFi loans are also teetering on the brink due to swiftly decreasing ETH prices. Current estimates suggest that approximately $13.6 million in loans are at a liquidation level of $1,857 per ETH, while an additional $117 million in loans face liquidation at a significantly lower threshold of $1,780. According to DefiLlama data, liquidations could total an alarming $366 million should ETH witness a further 20% decline.
Liquidation events in the DeFi landscape can exert considerable pressure on the price of collateral assets. As protocols initiate the sale or auction of liquidated loans’ collateral, the resultant selling pressure can further exacerbate an already volatile market.
