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DeFi liquidations wipe out $24 million from the market

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This is the second-largest DeFi liquidation by volume in the sector’s history with the first being the $93 million in liquidations seen last November

Yesterday morning’s cryptocurrency market crash caused Decentralized Finance (DeFi) lending platforms to liquidate more than $24.1 million worth of loans.

Crypto data aggregator DeBank reported that $13.7 million or nearly 60% of the losses occurred on Compound as the price of ether plummeted as much as 15% to $1,655 before somewhat rebounding. Aave was second on the losses list with $5.4 million worth of liquidations.

Yesterday’s liquidation was second only to the hit taken by the DeFi sector on 26th November 2020, after $93 million in margin calls were liquidated due to a sudden increase in the price of DAI.

The prices of DAI spiked by more than 30% on Coinbase Pro, the source of Compound’s price oracle, leading to the liquidation of more than $88 million worth of crypto loan collateral on the protocol.

The total value of locked assets in the DeFi sector has also seen a decline from $44.5 billion to $38.8 billion over the past 24 hours, DeBank reported. This 12.8% drop marks the single largest daily drop in the DeFi markets since the 15.4% drop in the third week of January.

The extreme gas fee being associated with the use of the Ethereum mainnet might have also exacerbated the situation leading to over $24 million worth of loans being forcefully closed within 24 hours. Traders have reported gas fees of as high as $30 for simple token transfers.

As crypto users raced to outbid each other and ensure that their transactions were processed, network congestion during the period of rapidly tumbling prices may have prevented some traders from closing out their positions in time.

Margin traders, as well as DeFi users, are facing devastating impacts from the flash crash, with Kraken users demanding compensation for mass liquidations caused due to the accelerated crash. ETH dropped to about $700 on Kraken while the asset was transacting for roughly $1,400 on other exchanges.

Major corporations that have heavily invested in Bitcoin like Tesla and MicroStrategy have also witnessed multi-million draw-downs as the cryptocurrency fell by over $9,000 in just a few hours yesterday. However, Bitcoin has steadily recovered to trading at $50,800 despite the daily price decline of around 9%.

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