According to data tracked by analysis company IntoTheBlock, the total amount of “high-risk loans” in the decentralized lending market rose to $55 million on Wednesday, reaching the highest level since June 2022.
Source:
IntoTheBlock
Cryptocurrency traders typically borrow from decentralized lending platforms by locking digital assets as collateral. The risk lies in the fact that if the value of the collateral drops too much, the protocol will liquidate the debt by selling the collateral. High-risk loans refer to those that are only 5% away from the liquidation price. Once the price of the collateral drops to the liquidation price (a 5% drop), its value will not be enough to support the loan, triggering liquidation.
Therefore, the surge in these high-risk loans is worth attention as it may lead to a cascade of liquidations. IntoTheBlock states that large-scale liquidation activities can impact the value of collateral, causing more loans to face liquidation risks and resulting in a downward spiral of prices.
Data Source
Related articles:
“DeFi Liquidation Reaches Yearly High Amid Market Turmoil, Hits $350 Million in the Past 24 Hours”
“K33 Analyst: Actual Liquidation Situation in the Crypto Market May Be Worse Than Indicated by Data”
