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.
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%.
Denys Serhiichuk
Gamza Khanzadaev
Tomiwabold Olajide