The record number of liquidations stemming from the sharp market wipeout helped DeFi lending protocols such as Moonwell generate record profits.
Seven centralized exchanges liquidated over $1 billion in the past 24 hours, per Coinglass.
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Posted August 5, 2024 at 7:07 pm EST.
On Monday, amidst a larger global meltdown, the total crypto market cap shed 7% of its value on a 24-hour basis, representing an almost $162.3 billion drawdown, while $306.9 million in liquidations occurred on Ethereum’s top lending protocols: Aave, Compound, and MakerDAO’s Spark protocol. At presstime, ETH was trading at $2,450 at the time of writing, a nearly 10% decrease in the past 24 hours.
As the international market selloff continued and lending protocols generated record profits from liquidations, users’ assets were still at risk of more liquidations unless crypto prices found support levels.
Data from DefiLlama showed that $125.5 million currently sitting on Ethereum smart contracts was within roughly 20% of their liquidation price.
In the DeFi ecosystem, the USD value of the collateral that would be liquidated if ETH dropped to $1,956.76 was about $124.6 million.
Liquidations are common occurrences in the crypto market, especially during periods of high volatility. They occur when a trading venue such as Binance or Aave automatically closes a trader’s position because the user’s provided collateral is insufficient to keep the position active and open. Trading platforms typically execute liquidations to prevent more losses and avoid bad debt.
Read More: Ethereum Drops Below $2,300 Amid Rumors of Jump Crypto Unwinding Positions
As a result of the large price fluctuations over this weekend that continued Monday, total liquidations among seven centralized exchanges came in at almost $1.1 billion in the past 24 hours, with the largest single liquidation occurring on OKX, according to derivatives analytics platform Coinglass.
Decentralized trading platforms such as Aave and Moonwell not only saw their liquidation volumes reach a record high but also experienced substantial profit increases stemming from liquidations and the current market volatility during which BTC traded below $50,000.
On Aave, whose total value locked is greater than the next three lending protocols combined, its V3’s liquidation volume on Monday alone totaled $237.2 million, more than half of the total collateral ever liquidated on Aave’s V3.
“Aave Protocol withstood market stress across 14 active markets on various L1s and L2s, securing $21B worth of value,” wrote the lending protocol’s founder Stani Kulechov on X. “Aave Treasury was rewarded with $6M in revenue overnight from decentralized liquidations for keeping the markets safe.”
Read More: Bitcoin ETF Trading Volume Surges to $4.7 Billion Amidst Market Selloff
Moonwell, the third largest lending protocol on Base, saw an all-time high in total value liquidated of roughly $3.6 million on Monday, data from Into The Block highlights. Since the protocol charges 3% of each liquidation in fees, Moonwell earned about $134,000, a single-day record, founding contributor at Moonwell Luke Youngblood told Unchained in an email.
“Retail stock exchanges Charles Schwab, Fidelity, Vanguard and TD Ameritrade were all offline Monday morning, according to DownDetector.com,” wrote Youngblood to Unchained. “While traditional finance often suffers outages during periods of heavy market volatility, onchain finance protocols like Moonwell operate 24/7 on Ethereum, and there are no centralized intermediaries that can prevent smooth and orderly liquidations of underwater loans.”
“In addition, the front-end website used to access the protocol is static and hosted in hundreds of data centers globally, which provides uninterrupted access to the app regardless of how many millions of people try to access it at the same time. It has never been more clear that onchain finance is the future of all financial markets,” Youngblood added.
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