DeFi Liquidation Volume Hits $34.33 Million ATH, Highest Since December Last Year

Decentralized finance (DeFi) lending platforms are seeing record volumes of liquidations. In the past 24 hours, DeFi liquidations surpassed $39.25 million according to data from OKLink, a multi-chain blockchain explorer. DeFi lending protocol Aave has seen the most loan liquidations of any lending platform.

DeFi Liquidations in the Last 24 Hours Nearing an Alarming Multi-Month High

According to data from OKLink, DeFi loan liquidity over the past 24 hours has reached levels last seen in December of last year. There have been over $39 million in DeFi liquidations on DeFi lending protocols. Ethereum-based lending protocol Aave was the single largest contributor to this metric seeing over $25 million worth of liquidations (more than 60% of the total).

The daily liquidation move has surpassed the total amount of DeFi liquidations recorded in October and November by $32.48 million and $33.77 million, respectively, according to data from The Block. However, the highest liquidation recorded on the DeFi platform was in May of last year, with a liquidation of $1.33 billion.

Liquidation of DeFi loans is similar to traditional bank loans. It is similar to how banks liquidate a borrower’s collateral to repay loans in the event of default to cover the loan. DeFi lending platforms allow users to deposit their crypto as collateral and take out a loan. Liquidation occurs when the price of the collateral reaches the liquidation price and the protocol sells the asset to pay off the loan automatically.

What caused the current liquidation cascade?

The current liquidation has been driven by market volatility. The crypto market capitalization has dropped 11.23% to now stand at $1.81 trillion according to Coinmarketcap (CMC) data. The sharp drop has wiped more than $230 off the crypto market. Ethereum, the mainstay of the DeFi lending platform, has seen its price drop by 13.79% and is currently trading at around $2,700.

The market bloodbath has also seen massive liquidations recorded in the crypto derivatives market. At the time of writing, the crypto futures market has recorded over $875 million per data from Coinglass. Over 85% of the liquidations are long positions being wiped out.

The crypto market crash is attributed to fear, uncertainty, and doubt stemming from recent regulatory announcements about cryptocurrencies. Russia reveals plans to ban cryptocurrency use and cryptocurrency mining. The US Securities and Exchange Commission also recently announced that it will focus on regulating cryptocurrency exchanges by 2022.

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