According to data tracked by analysis firm 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 often borrow from decentralized lending platforms by locking up 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 loans that are only 5% away from the liquidation price. Once the price of the collateral falls to the liquidation price (a 5% drop), its value will no longer be sufficient to support the loan, triggering liquidation.
Therefore, the surge in these high-risk loans is worth paying attention to as it may lead to a cascade of liquidations. IntoTheBlock states that large-scale liquidation activities can affect the value of collateral, exposing more loans to liquidation risks and causing a spiral of price decline.
Source:
Related articles: “DeFi Liquidation Hits Annual High Amid Market Turbulence, Surpassing $350 Million in the Past 24 Hours” and “K33 Analyst: Actual Liquidation Situation in the Cryptocurrency Market May Be Worse Than the Data Indicates”.
