The record number of liquidations resulting from the abrupt market collapse helped DeFi lending protocols like Moonwell generate record profits.
According to Coinglass, seven centralized exchanges liquidated over $1 billion in the past 24 hours.
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Posted on August 5, 2024 at 7:07 p.m. EST.
On Monday, amid a broader global crisis, the total cryptocurrency market cap lost 7% of its value on a 24-hour basis, representing a drop of nearly $162.3 billion, while $306.9 million in liquidations occurred on Ethereum’s top lending protocols: Aave, Compound, and MakerDAO’s Spark protocol. At press time, ETH was trading at $2,450 at the time of writing, down nearly 10% in the past 24 hours.
As the international market sell-off continued and lending protocols generated record profits from liquidations, users’ assets were still at risk of further liquidations unless cryptocurrency prices found support levels.
Data from Llama Challenge showed that $125.5 million currently stored on Ethereum smart contracts was about 20% of its liquidation price.
In the DeFi ecosystem, the USD value of collateral that would be liquidated if ETH dropped to $1,956.76 was approximately $124.6 million.
Liquidations are a common occurrence in the cryptocurrency market, especially during periods of high volatility. They occur when a trading platform such as Binance or Aave automatically closes a trader’s position because the collateral provided by the user is insufficient to keep the position active and open. Trading platforms usually execute liquidations to prevent further losses and avoid bad debts.
Read more: Ethereum Falls Below $2,300 on Rumors of Jump Crypto Unwinding Positions
Due to the significant price fluctuations over the weekend that continued into Monday, total liquidations across seven centralized exchanges reached nearly $1.1 billion over 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 have not only seen their liquidation volumes reach record highs, but have also seen substantial profit increases resulting from liquidations and the ongoing market volatility during which BTC has traded below $50,000.
On Aave, which has more total value locked than the next three lending protocols combined, its V3 liquidation volume on Monday alone totaled $237.2 million, more than half of Aave’s total V3 collateral ever liquidated.
“Aave protocol withstood market stress across 14 active markets across various L1 and L2 tiers, securing $21 billion in value,” the lending protocol’s founder Stani Kulechov wrote on X. “Aave Treasury was rewarded with $6 million in overnight revenue from decentralized liquidations for keeping markets safe.”
Read more: Bitcoin ETF trading volume hits $4.7 billion amid market sell-off
Moonwell, the third-largest lending protocol on Base, recorded an all-time high in total liquidated value of about $3.6 million on Monday, according to data from Into The Block. Since the protocol charges 3% of each liquidation in fees, Moonwell earned about $134,000, a single-day record, Moonwell founding contributor Luke Youngblood told Unchained in an email.
“Retail exchanges Charles Schwab, Fidelity, Vanguard, and TD Ameritrade were all offline Monday morning, according to DownDetector.com,” Youngblood wrote to Unchained. “While traditional finance often experiences outages during periods of high market volatility, on-chain financial protocols like Moonwell operate 24/7 on Ethereum, and there are no centralized intermediaries that can prevent the smooth and orderly liquidation of underwater loans.”
““Additionally, the front-end website used to access the protocol is static and hosted in hundreds of data centers around the world, allowing uninterrupted access to the application no matter how many millions of people are trying to access it at the same time. It has never been clearer that blockchain finance is the future of all financial markets,” Youngblood added.
