DeFi lending market sees an increase in highrisk loans reaching a twoyear high with potential systemic liquidation risk

DeFi lending market sees an increase in highrisk loans reaching a twoyear high with potential systemic liquidation risk

DeFi lending market sees an increase in highrisk loans reaching a twoyear high with potential systemic liquidation risk

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 typically borrow from decentralized lending platforms by locking in digital assets as collateral. The risk lies in the fact that if the value of the collateral falls 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 be insufficient to support the loan, triggering liquidation.
Therefore, the surge in these high-risk loans is worth paying attention to as it could lead to a chain reaction of liquidations. IntoTheBlock states that large-scale liquidation activity can impact the value of collateral, causing more loans to face liquidation risks and resulting in a spiral of price decline.
Data Source:
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