ETH price drop puts DeFi positions at risk of liquidation

03/10/2023 15:07 • Daily Digest • 62 views

On March 10, it was reported that after ETH plummeted to a two-month low of $1373, several on-chain positions faced the risk of liquidation. According to DeFiLlama’s data, the $9.2 million position on MakerDAO will be cleared at $1367, while the $29.6 million position on Compound will be cleared at $1241 through the smart contract of the agreement.

ETH fell to a two-month low, and positions on MakerDAO and Compound faced liquidation risk

Analysis based on this information:

The message states that ETH (Ethereum) has experienced a sharp drop in value, with its price falling to a two-month low of $1373. This price drop has put several on-chain positions in the decentralized finance (DeFi) space at risk of liquidation. DeFi is a type of finance that is built on blockchain technology and operates without the need for intermediaries like banks.

According to DeFiLlama’s data, two large positions at MakerDAO and Compound are at risk of being liquidated. MakerDAO is a lending platform that allows users to borrow DAI, a cryptocurrency pegged to the US dollar, by collateralizing their ETH. The $9.2 million position on MakerDAO will be liquidated at $1367, which is just below the current ETH price. This means that if the price of ETH falls further, the position will be liquidated and the borrower will lose their collateral.

Compound is another DeFi lending platform that operates in a similar way to MakerDAO. Users can borrow and lend cryptocurrencies by collateralizing their assets. The $29.6 million position on Compound will be liquidated at $1241, which is much lower than the current ETH price. This means that the position is at a higher risk of being liquidated than the position on MakerDAO.

Liquidation is a common feature in DeFi lending platforms. It is used to protect lenders from borrowers who fail to repay their loans. When a borrower’s collateral falls below a certain threshold, their position is automatically liquidated and their collateral is used to repay the loan. This ensures that lenders are protected from losses due to market volatility.

In conclusion, the price drop of ETH has put several on-chain positions in DeFi lending platforms at risk of liquidation. This highlights the importance of managing risk when investing in DeFi. Borrowers should ensure that they have enough collateral to protect themselves from market volatility, while lenders should be aware of the risks associated with lending in a decentralized system.

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