The value of collateral backing loans on decentralized finance (DeFi) platforms has been falling alongside Ethereum’s price decline.
Over $5.4 million in collateral was liquidated across DeFi platforms in the last 24 hours, with Ethereum accounting for $4.2 million. A further drop in Ethereum’s price to $3,237, a decline of around 7.87% within a day, could trigger an additional $24 million in liquidations, according to the data recorded on Coinmarketcap.
This situation arises because DeFi lenders often require borrowers to over-collateralize their loans, meaning they must pledge assets worth more than the loan amount to account for price fluctuations.
When the collateral’s value (like Ethereum in this case) falls sharply, the platform automatically sells the collateral to repay the loan, potentially at a loss for the borrower.
Ethereum’s current price of $3,238 reflects a 15% decline over the past week, contributing to these liquidations. The broader cryptocurrency market is also down, with the overall market cap falling 3.5% today.
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