DeFi Hit With Record Liquidations Amid Market Slump

DeFi is in its biggest market rout of the year and borrowers are feeling the pain. Liquidations in decentralized finance spiked to a record $133M in the past day, according to Debank data.

$85.2M, or almost 78% of the liquidations, were on Compound. $13M, or 12%, has been shared between Aave V1 and Aave V2.

Liquidations were triggered by a 34% drop in ETH price from a record of over $2k on Feb. 20 down to $1.4k at the time of writing, the lowest in three weeks, and the biggest three-day drop since September. ETH has dropped by more than 30% in a three-day period only eight times since 2016.

The sharp decline yesterday caused a flash-crash to $700 from over $1,700, and then back to $1,700 in a matter of seconds on Kraken yesterday. The exchange said in a tweet the dip was caused by “a surge in selling.”

DeFi Tokens

DeFi tokens are following suit, with the DeFi Pulse Index also plunging 34% from its high on Saturday, to a three-week low. DeFi tokens declining by more than 30% in the past week include CREAM, KeeperDAO, BadgerDAO, NFTX, Hegic and Harvest Finance.

Ethereum gas prices are also spiking, with data on Blockchair showing an average transaction fee of $50 USD, compared to under $1 for most of Ethereum’s life, and under $10 during December and January.

Even after this correction, ETH is still up by 2x this year, and so are DeFi tokens measured in the DPI index, while Bitcoin is up by almost 70% YTD. After such a huge run-up, analysts and investors will agree this pullback was to be expected.

[UPDATED 2/23 @ 6:40PM to reflect total liquidations were for $133M]