Ethereum's Decline Below $1.9K Disrupts DeFi, Risks $130M Backed Crypto Loan

What to know:

Ethereum’s ETH price fell nearly 10% on Monday, causing a disturbance in DeFi markets where the token serves as a critical collateral asset.
A significant DeFi loan on Sky (formerly Maker) secured by $130 million worth of ETH is currently at risk of being liquidated, even after the borrower provided an additional 2,000 ETH as collateral.
Approximately $336 million worth of assets are at risk of liquidation within a 20% price range of ETH, according to DefiLlama.

Ethereum’s ETH has been on a downward trend, putting a major decentralized finance (DeFi) loan at risk of liquidation.

The borrower at risk secured a $74 million loan in DAI stablecoin by collaterizing 65,680 ETH, valued at around $130 million earlier today, according to a Sky vault data dashboard.

On a day already marked by weak crypto market conditions, ETH dropped nearly 10% to $1,820, falling below the loan’s liquidation threshold slightly above $1,900.

Blockchain tracking by Debank indicates that the borrower withdrew 2,000 ETH, nearly worth $4 million at current valuations, from the Bitfinex exchange earlier on Monday and deposited these to the Maker vault to bolster the loan collateral and avert liquidation. As ETH continued to decrease in price, the borrower withdrew $1.6 million in USDT from Binance, converted it into DAI, and added it to Maker, reducing the debt to $73.1 million.

After these transactions, the liquidation price for the loan stood at $1,836 per ETH while ETH was trading at about $1,870.

Additional Insights

Notably, this isn’t the only DeFi loan facing challenges from falling ETH values. There are also $13.6 million in loans nearing liquidation at a price of $1,857 per ETH, along with another $117 million at a liquidation point of $1,780. According to DefiLlama, up to $366 million of debt would be subject to liquidation if ETH declines by another 20%.

Liquidations in DeFi could severely affect the pricing of a collateral asset, as the protocols sell off or auction the collateral from liquidated loans, intensifying selling pressures.