Ethereum’s Price Plummet Pushes DeFi Liquidations to Record $350M Yearly High
Leveraged DeFi whales have been hit hard by Ethereum's collapse. (Photo by Fatih Kurt/Anadolu via Getty Images)
- Ethereum DeFi lending liquidations have topped $350 million in the last 24 hours.
- Long and short positions have seen over $1 billion in liquidations over the past day.
- August is a historically bad month for crypto and stock market performance.
Ethereum (ETH) has tumbled below $2,500, prompting hundreds of millions in leveraged positions in decentralized finance (DeFi) protocols to be liquidated.
With the price of Bitcoin (BTC) and crypto exchange-traded fund (ETF) activity stagnating, long and short liquidations have exceeded $1 billion, and many are wondering if the summer macro bull cycle has ground to a halt.
Ethereum Liquidations
According to data from Parsec , the past 24 hours have seen a record-breaking $300 million in lending liquidation volumes. This surge in liquidations was a direct consequence of the sudden price drop, which forced these whales to cover their loans and led to a cascade of sell-offs.
Ethereum-based decentralized exchange AAVE v3 saw nearly $250 million on Aug. 5. The majority of these liquidations were attributed to Wrapped ETH (WETH), which accounted for $146 million. Other assets affected included Wrapped stETH (wstETH) with $68.4 million in liquidations and Wrapped Bitcoin (WBTC) with $24.3 million.
The storm also extended to rival DeFi lending protocols, including MakerDAO’s Spark Protocol and Compound , which each saw $35 million worth of positions wiped out. Morpho Blue also recorded $18.1 million in liquidations.
Ethereum gas prices also shot up from an average of 5 Gwei on Aug. 4 to 701 Gwei at the time of writing.
With Ethereum struggling to gain traction, crypto analyst Wu Blockchain warns that the DeFi market could suffer further.
“As Ethereum fell to nearly $2,100, the Max Ethereum gas fee reached 710 gwei, and the current average is 350 gwei. When Ethereum fell to $1,950, $92.2 million of crypto assets in the DeFi protocol would be liquidated; when $1,790, $271m defi assets would be liquidated.“
However, Santiment believes better times may be ahead for Ethereum. According to the research firm, historical trends indicate that a surge in liquidations on platforms like AAVE and Compound often precedes a swift market rebound. This phenomenon is attributed to “opportunistic buying from key stakeholders,” who are often waiting to buy the dip.
With Ethereum trading around $2100 at the time of writing, Santiment asserts the asset could rapidly surge to $4,000.
$1B Crypto Liquidations
The liquidation scare wasn’t limited to DeFi platforms. Major centralized crypto exchanges also saw significant liquidations in both long and short positions. As per CoinGlass data , 283,205 traders have seen $1.21 billion in liquidations in the past 24 hours.
Long traders in BTC and ETH caught the worst of the market decline, with 24-hour liquidations exceeding $1 billion for the pair. Long BTC positions eliminated nearly $500 million, with $62 million lost in shorts.
Leveraged ETH trades, particularly long positions, also witnessed a bloodbath, losing over $385 million. Short positions, on the other hand, lost $50 million. Should the bears continue to command the market’s direction, chances of a recovery appear slim.
Impacts and Implications
Removing all the noisy market dynamics in play, seasonal trends could guide the market upward. Historically, bearish conditions tend to take hold of both crypto and stock markets in August and September.
Meanwhile, the best months tend to be October, November, and December, suggesting that broader market turmoil could soon end. That said, this will be the first time institutional crypto products are in the market.
With inflows and outflows of Bitcoin and Ethereum ETFs cooling off last week, there is reason to believe that a flurry of institutional investors will buy discounted BTC and ETH in the coming days.
$250M Exit Bitcoin and Ethereum ETFs Ahead of Crypto Market Bloodbath
