Gold as an investment

Ethereum's Dip to $1,150 May Cause Catastrophe on Lending Market, Here's How

Sep 23, 2022

article image

Arman Shirinyan

Ethereum is in dangerous position as lenders may face massive cascade of liquidations worth approximately $500 million

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

According to blockchain insider Colin Wu and Parsec Finance on-chain tracker, the Ethereum lending and borrowing market is in danger as ETH's price reaches dangerous values and may cause a real catastrophe.

The issue is in the number of liquidations that will appear on the market if ETH falls below or to $1,150. Reportedly, more than $500 million in on-chain collateral and $300 million of on-chain collateral near $21,600 will evaporate.

Ethereum chart Source: TradingView

The massive liquidation will fuel the further drop of the market and a massive outflow of funds from decentralized applications. The strong drop in the usage of decentralized applications will decrease the network's revenue.

Previously, various market and on-chain tracking services reported more than $700 million in liquidations, which ended up being a mistake on the centralized exchange's API side. But with more than $500 million of real liquidations, the pressure on the asset will increase drastically.

Market is bleeding following inflation data

The main driver of the sell-off on the cryptocurrency market is the unexpected inflation data. The aggravating devaluation of the U.S. dollar caused a rally of commodities like gold, which added over 3% to its value in 24 hours.

More risks on Ethereum appeared after the depegging on the stETH to ETH pair caused by the massive sell-off and the lack of liquidity. The sell-off was caused by the dropping profitability of the ETH 2.0 staking contract, the reorganization of the test network and the profit-taking of early depositors.

Risk-on assets like cryptocurrencies and tech stocks faced massive outflows and value drops. Bitcoin has lost over 5.5% to its value in 24 hours, and Ethereum plunged 12%.


Related Posts