The DeFi space is reeling from a substantial collateral liquidation event triggered by Ethereum’s plunging price. Over the past 24 hours, more than $5.4 million worth of collateral has been liquidated across various DeFi platforms, with Ethereum accounting for a staggering $4.2 million of the total.
According to Parsec’s data, the situation could worsen if ETH drops to $3,008, potentially prompting an additional $24 million in liquidations. This underscores the risks associated with overcollateralized lending in the volatile crypto market.
Prominent on-chain derivatives exchanges like GMX, Kwenta, and Polynomial have been at the epicenter of these liquidations, collectively triggering over $52 million in just one day.
In DeFi lending, loans are overcollateralized to mitigate price volatility risks. However, when the collateral asset’s price, like Ethereum, experiences a sharp decline, it can lead to liquidation events. Platforms automatically sell the collateral, often at a lower market value, resulting in potential losses for borrowers.
With Ethereum currently trading around $3,338, marking a 15% weekly drop, and the overall crypto market cap down 3.5%, this liquidation event serves as a stark reminder of the risks inherent in overcollateralized lending within the unpredictable DeFi landscape.
