Ethereum is in dangerous position as lenders may face massive cascade of liquidations worth approximately $500 million
According to a blockchain insider Colin Wu and on-chain tracker Parsec Finance, the Ethereum lending and borrowing market is in danger as the price of ETH reaches dangerous values and can cause a real disaster.
The issue is in the number of liquidations that will appear on the market if ETH falls below or to $1,150. Reportedly, more than $500 million in on-chain collateral and $300 million of on-chain collateral near $21,600 will evaporate.
The massive liquidation will fuel the further market decline and a massive outflow of funds from decentralized applications. The sharp decline in the use of decentralized applications will decrease network revenue.
Previously, various market and on-chain tracking services reported more than $700 million in liquidations, which ended up being a mistake on the centralized exchange’s API side. But with more than $500 million of real liquidations, the pressure on the asset will increase drastically.
Market Bleeds on Inflation Data
The main driver of the sell-off in the cryptocurrency market is unexpected inflation data. The worsening devaluation of the US dollar caused a rally in commodities like gold, which added more than 3% to its value in 24 hours.
More risks on Ethereum appeared after the depegging on the stETH to ETH pair caused by the massive sell-off and the lack of liquidity. The sell-off was caused by the dropping profitability of the ETH 2.0 staking contract, the reorganization of the test network and the profit-taking of early depositors.
Risky assets like cryptocurrencies and tech stocks have faced massive outflows and declines in value. Bitcoin lost more than 5.5% of its value in 24 hours and Ethereum plunged 12%.
