1 Defi liquidation process intensifies, with a steep drop in ETH value, 2 Ether fell around 8% in the last five trading sessions. In the last few days, the crypto market witnessed nearly $385 Million liquidated in perpetual contracts; this is not good for the DeFi ecosystem. However, this recent spike can be attributed to the volatile situation pertaining to the market. Liquidation is a scenario where crypto exchanges close out long and short positions of traders when the initial margin goes below a required threshold.
Binge Liquidation in Decentralized Finance (DeFi), a Bad Scenario
The United States Securities and Exchange Commission’s tight regulations, and the issues surrounding Ethereum’s consensus have led to a big transition in the DeFi space. This has caused a rise in the number of liquidations taking place. Additionally, the DeFi market’s low liquidity and the high volatility of Ether have further exacerbated the situation. This has led to a large number of traders being liquidated, rather than making a profit from their investments.