$200 million in liquidations threaten DeFi
Those last weeks, the cryptocurrency market suffered a violent storm which caused it to plunge to low levels that had not been seen for a long time. The collapse of the Terra (LUNA) ecosystem was the domino that caused a cascade of eventswhose repercussions continue to be appreciated today.
The most recent is the Celsius case, one of the largest centralized lending platforms of the market. Impacted by the fall of the stablecoin UST and singled out for its poor management of customer assets, Celsius threatens bankruptcy.
Moreover, this is not an isolated case since the famous investment fund Three Arrow Capital is also experiencing difficult days following liquidations. Moreover, the fall in prices forced the entity to sell its positions at a loss to avoid further liquidation.
The sales volumes of these large wallets are such that they dragged the market even further into the abyss. So much so that many DeFi users now find themselves in awkward positions. Loans, relatively secure a few weeks ago, are now on the verge of liquidation.
Moreover, for the past few days, the Aave protocol has been threatened by a wall of potential liquidations. If Ether (ETH) drops below around $950, a single address could see its loan of nearly $200 million to be liquidated.
This sword of Damocles hovered over the Aave protocol and threatened the entire cryptocurrency market. Fortunately, the address in question – long suspected to be that of Three Arrow Capital – made moves to secure his position and thus breathe new life into the market.
👉 To deepen, our complete guide on Ethereum (ETH) and how this crypto works?
The address repays part of its loan
As of June 16, 2021, this address had a loan of 167 million dollars contracted on the Aave protocol. In surety, the collateral consisted of 200,000 ETH, then valued around $211 million. the health factor (loan safety factor) was 1.08, which meant that a mere 8% move on Ether could trigger liquidation.
However, one detail was of particular concern: who would want to liquidate this position? Indeed, the 5% fee offered to liquidators would not be enough to compensate for the fall in the price of Ether occasioned by the liquidation of such a sum.
Only one solution: the mysterious individual had to provide capital to repay his loan and secure one’s position. And that is exactly what happened: the address in question repaid 25% of their loanor 50 million dollars, in order to reduce its liquidation price.
Fig. 1 – Comparison of the position on Aave as of June 16 and June 18, 2022
As you can see from the screenshot above, the health factor is now at 1.12, while Ether has already fallen almost 15% since June 16.
This individual carried out several similar operations, which you can observe on the screenshot below. Specifically, these consisted of swap of ETH against USDC in order to reimburse them to the protocol. This is how about 30 million USDC was taken out of the position.
Fig. 2 -Example of operations carried out to secure the position
Also note that we have identified another address linked to this one, and having also offloaded several million dollars a loan position on the Compound protocol.
Although there are still significant risks of liquidation around this position, the responsiveness of the individual has been lifesaving for the ecosystem. This dangerously threatened to bring down the market but above all, fault the Aave protocol.
👉 To go further, our exclusive file: Celsius Network, why and how is the platform collapsing?
Sources: Etherscan, Fig 1: Debank, Fig 2: Debank