Ethereum’s ETH experienced a significant drop on Monday, putting a substantial decentralized finance (DeFi) loan at risk of being liquidated on the lending platform Sky (formerly Maker).
The borrower in jeopardy had borrowed $74 million in DAI stablecoin by providing 65,680 ETH as collateral, valued at nearly $130 million earlier in the day according to a Sky vault data dashboard. As ETH plummeted by almost 10% to $1,820 during the day, it fell below the loan’s liquidation threshold set slightly above $1,900.
Data from Debank revealed that the borrower withdrew 2,000 ETH – equivalent to almost $4 million at current market prices – from the crypto exchange Bitfinex earlier on Monday. The assets were then deposited into the Maker vault to bolster the collateral and prevent liquidation. Following this deposit, the liquidation level for the loan was adjusted to around $1,875 per ETH, which still exceeded the latest market price.
This particular DeFi loan was not the only one at risk due to the rapid decline in ETH prices. There were approximately $13.6 million worth of loans facing liquidation at a threshold of $1,857 per ETH, with an additional $117 million in loans set to be liquidated if ETH dropped to $1,780, as indicated by DefiLlama data. In total, there was $366 million in debt that could potentially be liquidated if ETH prices plummeted by another 20%.
Liquidations in the DeFi space can have a significant impact on the price of the collateral asset, as the protocol sells off or auctions the collateral of a liquidated loan, thereby exacerbating selling pressure in the market.
In conclusion, the volatile nature of the cryptocurrency market, especially with assets like ETH, underscores the importance of closely monitoring loan positions and collateral levels in DeFi platforms to avoid potential liquidation risks during market downturns.