DeFi Liquidations Spike Amid Market Slump

It’s a bloodbath in crypto markets and DeFi borrowers are feeling the pain as liquidations spike.

Total liquidation volume jumped to $14.6M on Jan. 10, almost tripling  from the previous day, according to data compiled by DeBank

Risk of Leverage

Liquidations, which in this context are the resale of borrowers’ collateral by other market participants, are triggered when the value of assets deposited to back loans falls below the required ratio. This is more likely to happen when there are sharp market moves, like the recent plunge. It underlines the risk of taking on leverage in crypto, one of the most volatile asset classes out there. 

Compound borrowers were hit hardest, constituting almost 58% ($8.5M) of the liquidations. Aave V2 followed at 25%, Ave V1 at 9.3%, and Maker at 3.1%.

Highest Since November

This is the highest volume of liquidations seen on the DeFi market since the massive $88.6M  Compound liquidation on Nov. 11, when the Dai price spiked to $1.3 on Coinbase, which Compound used for its data feeds, leaving some borrowers under collateralized. 

Of course, it’s not just DeFi suffering. Bitcoin liquidations have been massive, with $1.4B worth of BTC liquidated over a 24 hour period. It’s hard to know how long a bear market like this will last, so stay safe.