ETH falling by 20% may trigger $336M in DeFi liquidations — Web3 exec

Recent developments in the Ethereum market have raised alarms about potential cascading liquidations, particularly if the price of Ether (ETH) continues to decline. Kevin Rusher, founder of the real-world asset (RWA) lending platform RAAC, has drawn attention to a possible $336 million in decentralized finance (DeFi) liquidations triggered by a further 20% drop in ETH’s price.

Rusher specifies critical price thresholds: a fall to $1,857 could result in $136 million in liquidations, while a decrease to $1,780 may lead to an additional $117 million being liquidated. He cautions that a drastic downturn to approximately $1,500 would unlock the potential for massive liquidation events amounting to $336 million. Rusher emphasizes that the core issue contributing to this volatility is a significant $130 million ETH-backed loan within the Sky protocol, previously known as Maker. This loan is reportedly at a critical juncture, with the borrower struggling to provide additional collateral to stabilize the situation.

The potential for large-scale liquidations in the DeFi sector has highlighted the inherent risks of crypto-backed loans, which often suffer severe volatility. Rusher advocates for the integration of more stable real-world asset-backed lending mechanisms—such as real estate and gold—into the DeFi landscape as a strategy to mitigate such risks and counter over-leveraging issues.

The immediate repercussions of ETH’s declining price have been stark. Ether’s value recently reached multi-year lows against Bitcoin (BTC), prompting speculation of further declines. Analysts suggest that a potential 30% drop against the supply-capped asset could result in a bottom around $1,600 for ETH. In the past week alone, ETH has seen a price decline exceeding 15%, drastically underperforming its 200-day exponential moving average (EMA) noted since February.

The relative strength index (RSI) sits at 31, nearing oversold territory, indicating a possible local bottom and hinting at a prospective price reversal. However, the ongoing disappointing performance has led some market analysts to recommend shifting investments into higher-performing altcoins to capitalize on potential profit opportunities.

In light of these developments, it is crucial for investors and market participants to remain vigilant as they navigate the volatile landscape of cryptocurrency. Understanding the intricate dynamics of DeFi loan structures and potential market impacts of price fluctuations will be key as the situation evolves.