Along with Ethereum’s price decline, the value of collateral-backed loans on decentralized finance (DeFi) platforms has decreased.
Over the last day, about $5.4 million in collateral was liquidated across DeFi platforms, with $4.2 million moving to Ethereum. According to Coinmarketcap data, a further $24 million in liquidations would result from Ethereum’s price falling to $3,237, a 7.87% reduction in a single day.
This situation arises from the fact that DeFi lenders sometimes require borrowers to over-collateralize their loans—that is, pledge assets worth more than the loan balance—in order to account for market volatility.
When the value of the collateral—in this example, Ethereum—decreases dramatically, the platform automatically sells it to repay the loan, often at the borrower’s loss.
These liquidations have been worsened by Ethereum’s current price of $3,238 — a 15% decline from the previous week. Today, the total market capitalization of cryptocurrencycurrencies is down 3.5%, indicating that the larger market is also declining.
