Traders Shun On-Chain Leverage In Volatile Market

Aave and Compound Liquidated Just $850K Of Collateral As Ether Dropped 25%

By: Aleksandar Gilbert Loading...

Traders Shun On-Chain Leverage In Volatile Market

DeFi money markets have liquidated tens of millions in crypto collateral following each nosedive in the crypto markets this year. But traders are unscathed in the wake of last week’s industry-wide selloff.

Aave and Compound, two of the three largest lending protocols with a combined $14.6B in total value locked, liquidated just $850,000 of collateral in the past week, according to data from The Defiant Terminal. Ether fell 25% during the period after briefly trading above $2,000 on Aug. 14.


DeFi Liquidations. Source: The Defiant Terminal

That sum is a far cry from the amounts liquidated during other sharp downturns this year. Meanwhile, centralized exchanges saw over $600M in liquidations last week.

Three Arrows Collapse

Between June 9 and June 13, Ether lost a third of its value as now-defunct hedge fund Three Arrows Capital sold its digital assets in a last-ditch attempt to remain solvent. On June 13, Aave liquidated more than $34M in collateral, while LUSD issuer Liquity liquidated $22M. Five days later, after Ether dropped below $1,000, Liquity sold off another $77M.

When Terra’s UST stablecoin lost its peg in May, Abracadabra, the issuer of the MIM stablecoin, liquidated $110M of collateral. And, in the largest liquidation event of the year, Maker, the protocol behind the DAI stablecoin, sold almost $400M of Ether on Jan. 21 after the second-largest cryptocurrency fell 23% over five days.

Merge Hype

Building hype around Ethereum’s long-delayed transition to ESG-friendly proof-of-stake technology, currently scheduled for Sept. 15, has fueled a month-long bull market that has seen Ether trade above $2,000 for the first time since May.

Nevertheless, few traders are feeling lucky.

DeFi liquidations over $30M won’t occur unless Ether approaches $1,000, according to data from Defi Llama.


Liquidatable ETH Positions. Source: DeFi Llama

Traders’ risk-averse approach was vindicated last week, as a surging dollar weighed on global markets.