As Ethereum faces a significant downturn, DeFi platforms have experienced liquidations totaling over $5.4 million, with Ethereum accounting for the lion’s share at $4.2 million. Parsec data indicates that a further drop in ETH to $3,008 could trigger an additional $24 million in liquidations, posing a threat of further destabilization.
On-chain derivatives exchanges like GMX, Kwenta, and Polynomial have been at the forefront of these liquidations, collectively causing over $52 million in liquidations in the past day alone. Liquidations in the context of DeFi occur when assets pledged as collateral for loans are sold off by the platform or protocol.
In DeFi lending, loans are typically over-collateralized to mitigate the volatility of cryptocurrency prices. However, sharp declines in the market price of collateral assets, such as Ethereum, can trigger liquidation events. The platform automatically sells the collateral to ensure loan repayment, often resulting in losses for the borrower as the assets are sold at a lower market value.
Ethereum is currently trading at around $3,338, reflecting a 15% decline over the past week, according to CoinGecko. The overall crypto market cap has also decreased by 3.5% today, prompting notable liquidations following a month-long rally.
