Crypto Liquidations & Price Drops

After the recent impressive rise of Bitcoin above $ 50,000 on February 22nd cryptocurrency markets experienced a “red Monday”. We’re ending the week with most crypto’s trading lower, with Bitcoin around $44-46,000. One of the most significant falls this week has been Ether (ETH) down 30% on weeks highs after only just celebrating hitting an All-Time-High of $2,042.

Largescale liquidations of around $25m took place on DeFj (decentralized finance) loans as the price of ETH declined. A loan in DeFi is a transaction by a user to obtain funds after guaranteeing ETH or other cryptocurrencies available as collateral. This weeks liquidations represent the largest amount in over 3 months. According to analysis from Coindesk provided by DeBank 57% of total liquidations, totaling $13.6m came from the lending platform Compound, with 33% on Aave (V1 & V2) totaling an estimated $8m. Other smaller but notably liquidations including bZx $1.1m, Maker $0.8m and Cream $0.3m.

GAS FROM ETHEREUM

Higher gas fees are likely to be a contributor to DeFi liquidations, These are the commissions that an operator of the Ethereum network has to pay for transactions in Ether, Gas is required to close our positions so as not to be liquidated. The etherscan.io site shows that an operation can cost between US $ 14-21. Depending on the platform used, the cost of moving funds may increase. Indicators from Blockchair show that Monday’s gas fee was as high as $34, putting pressure on the repayment of DeFi loans.

The selloffs suffered this week were the second largest to hit DeFi, after the $93m in margin calls that resulted from a momentary price increase in DAI on November 26th 2020. That DAI price spike of 30% on Coinbase Pro, the source of Compound’s price oracle, led to under-collateralised loans on the protocol and the liquidation of $88m in crypto loan guarantees on the protocol.

The selloffs suffered this week were the second largest to hit DeFi, after the $93m in margin calls that resulted from a momentary price increase in DAI on November 26th 2020. That DAI price spike of 30% on Coinbase Pro, the source of Compound’s price oracle, led to under-collateralised loans on the protocol and the liquidation of $88m in crypto loan guarantees on the protocol.

The competition of cryptocurrency users to outperform each other’s offers by securing their transactions and the saturation of the network amid rapidly falling prices, has prevented many traders from closing their positions at the right time.

Kraken Flash Drop & Bitcoin Futures Liquidation

Also Kraken users have demanded compensation from the massive sell-offs caused by an accelerating drop that sent ETH plummeting to $700 on Kraken while the asset traded for about $1,400 on other exchanges. Large Bitcoin investors also registered multimillion-dollar withdrawals amid the price action of February 22, which saw $9,000 erased from the price of BTC in a few hours. A massive $5.6bn worth of futures positions were liquidated over a 24 hour period on 22-23 February as the price of Bitcoin dropped 17%.

Written By:
Penny Sommerfeld
penny@recruitblock.io