Fantom Shakes Off Fears of a 'Catastrophic Liquidation Cascade'

Things Got a Little Hairy When a Whale Got Liquidated

By: Samuel Haig Loading...

Fantom Shakes Off Fears of a 'Catastrophic Liquidation Cascade'

The Fantom network has dodged a near miss.

For the last few days, the low-cost Layer 1 blockchain has been the subject of fearful speculation it couldn’t handle the liquidation of a whale in its native token, FTM, and might trigger a wave of liquidations.

Despite the majority of the investor’s position being liquidated in batches on May 1, the price of FTM has since rebounded 20%, showing that there was sufficient liquidity to absorb the capitulation.

One investor, CryptoDinduz, expressed the relief of many: “FTM just dealt with a catastrophic liquidation cascade without going down for a second. Am I the only one that’s still bullish?”

Poised for Liquidation

On April 29, a Reddit post drew attention to an enormous loan collateralized by Fantom’s native FTM token that was poised to be liquidated. The post revealed that the pseudonymous whale ‘Roosh’ had borrowed roughly $37M worth of stablecoins against 59M FTM using Scream, the Fantom-based lending protocol, and the trader’s position was dangerously close to being liquidated.

The post asserted that Roosh had used the funds to purchase SOLID and DEUS, before locking the tokens for four years and becoming illiquid in the process. The pseudonymous author claimed the liquidation would threaten to crash “the entire network.” Roosh confirmed the majority of borrowed funds went into SOLID and DEUS.

Previously worth in excess of $90M, the position’s collateral had since been devalued to roughly $50M.

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The Defiant The Defiant

It was the latest bit of bad news for Fantom, a platform that seeks to dethrone Ethereum as the leading smart contract network by enticing users with low fees and a robust DeFi ecosystem.

Fantom enjoyed surging growth alongside other low-cost Layer 1s last year, also attracting popular DeFi developer, Andre Cronje, to pledge allegiance to the chain. However, in early March, the sudden resignations of Cronje and Fantom Foundation member Anton Nell sent prices of the network’s top assets tumbling.

Cascading Liquidations

Fortunately for FTM hodlers, liquidations on Scream are executed partially, which means its orderbooks didn’t have to absorb the entire liquidation as a single order. Twitter user Megastuffs estimated that a $50M liquidation would have resulted in 42.5% slippage on-chain, threatening to create a death-cycle of cascading liquidations. Some onlookers had even ventured that Fantom was host to a paltry $32M in on-chain liquidity.

Roosh’s wallet shows that the position is currently backed by just 18M FTM worth $14.2M after several partial liquidations. Users have reported Fantom gas fees exceeding 30,000 gwei amid congestion triggered by the liquidations.

Screenshots of chat logs making the rounds on social media suggest Roosh has abandoned managing the position despite having received a $2M loan from Deus Finance’s development fund.

“I don’t think I will cover,” Roosh posted. “It is going to 0 because you guys made too much noise about it like a bunch of teens girls.”

The trader said he requested that the Fantom Foundation help mitigate the liquidations, but that only Dues Finance’s Lafa was willing to provide support.

The liquidations and bearish market sentiment has driven sizable drawdowns for the FTM token. The asset is trading at $0.80 after tanking 51% over the past month, and fell 47% during the final 10 days of April before bouncing off a local low of $0.65. FTM is also down more than 76% since retesting its previous all-time highs near $3.40 in mid-January.

FTM/USD weekly chart. Source: TradingView

Despite the negative press and sizable pull-back for FTM, Fantom supporters are rallying in support of the network, calling out critics for predicting the network’s imminent demise as a result of the liquidations.

CryptoQueb said that liquidity was “plenty sufficient” to absorb the liquidations. “Network was never compromised and despite traffic, you could still swap for around $1. Are we going to ask for accountability from yesterday’s doomsayers?” they tweeted.

Heavy Drawdowns

But many users remain cautious. Breezy08463387 said they withdrew all of their assets from the Fantom chain and are “never touching FTM again.”

Kern Steiner expressed their surprise that Fantom and its broader ecosystem had suffered such heavy drawdowns as a result of a $50M liquidation. Many assets of leading Fantom protocols including SCREAM, BOO, and SPIRIT have all lost at least one quarter of their value over the past seven days.