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 usually borrow from decentralized lending platforms by locking in collateral in the form of digital assets. 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 drops to the liquidation price (a 5% drop), its value will not be sufficient to support the loan, triggering liquidation.
Therefore, the surge in these high-risk loans is worth attention as it may lead to a chain of liquidations. IntoTheBlock states that large-scale liquidation activities can impact the value of collateral, exposing more loans to liquidation risks and causing a spiral of price decline.
Data source:
Related articles: “DeFi liquidation reaches a new annual high amid market turbulence, reaching $350 million within the past 24 hours” and “K33 analyst: The actual liquidation situation in the crypto market may be worse than what the data shows.”
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