The decentralized finance (DeFi) ecosystem teetered on the brink of collapse yesterday, with cascading liquidations sweeping the market following a sharp drop in the price of Ethereum (ETH). More than $5.4 million in collateralized assets were forcibly sold in a 24-hour period, raising concerns about the stability of the DeFi house of cards.
Ethereum, the world’s second-largest cryptocurrency by market capitalization, bore the brunt of the sell-offs. Its price plunged more than 9% to less than $3,200, a far cry from its recent high of $4,092.
This price swing triggered a domino effect as collateralized loans used to amplify returns on DeFi protocols faced margin calls. Parsec Data paints a bleak picture, with a potential $24 million liquidation event looming if the ETH price drops further to $3,008.
Volume of transactions involving Ether across Defi protocols. Source: Parsec
On-chain derivatives spark $52M DeFi settlement blitz
To make matters worse, in the same period, major on-chain derivatives triggered liquidations totaling more than $52 million. After selling Ethereum at a high of $4,100, short traders recovered their losses by buying back the cryptocurrency at $3,200.
The pain was not shared equally, however. Panic selling by long position holders, those betting on a rise in the price of ETH, resulted in a staggering $104 million in liquidations, compared to just over $16 million for short sellers. This imbalance could exacerbate ETH’s price decline, creating a negative feedback loop.
The situation highlights the inherent risks associated with leverage in DeFi protocols. While leverage can amplify profits, it can also amplify losses, especially during periods of high volatility.
Ether market cap at $378 billion on the 24-hour chart: TradingView.com
The bloodbath was not limited to the DeFi space. The broader crypto market has experienced increased volatility as investors prepare for the upcoming Federal Open Market Committee (FOMC) meeting. The potential for a Federal Reserve interest rate hike coupled with weak inflows into Spot Bitcoin ETFs cast a shadow of bearish sentiment across the digital asset landscape.
Ether price down in the last 24 hours. Source: Coingecko.
Ethereum Price Overview
Currently, Ethereum (ETH) is experiencing a decline of almost 10% and is trading at $3,138. The 24-hour trading volume for ETH is $29 million.
Ethereum saw a 20% pullback, making it the second most significant drop among the top 10 cryptocurrencies. ETH traders maintained their sense of confidence by maintaining and mitigating their positions in anticipation of an imminent period of recovery.
Based on prevailing market indicators, it is plausible that Ethereum price could avoid further declines for the foreseeable future as bullish sentiment looks to consolidate at the $3,200 support level, thus laying a foundation for a subsequent phase of recovery. recovery.
Featured image from Pexels, chart from TradingView
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