The total volume of crypto-collateralized loans that are within 5% of hitting their liquidation price has surged to an all-time high of $55 million on Benqi, a decentralized lending platform on Avalanche, as reported by IntoTheBlock.

• What's Happening? This spike in high-risk loans is signaling potential liquidation events and greater volatility in the market ahead.

The decentralized lending ecosystem on Avalanche is witnessing unprecedented growth, with high-risk loans reaching levels not observed in over two years, raising fears of upcoming liquidation cascades.

According to the data from IntoTheBlock, the current volume of these loans signifies significant market implications. Traders source loans against collateral in digital assets, but if the asset values plummet, they risk liquidation if loans exceed their collateral's safety thresholds.

This increase in risky lending could lead to rapid liquidation events, causing a downward pricing trend that would exacerbate existing market instability. The firm emphasized that substantial liquidations could severely impact collateral valuations.

IntoTheBlock concluded that poor market liquidity from growing bad debts could hinder stable trading operations, suggesting uncertain times ahead for traders.