Decentralized finance (DeFi) lending platforms are seeing record-shattering volumes of liquidations. In the past 24 hours, DeFi liquidations have surpassed $39.25 million according to data from OKLink, a multi-chain blockchain explorer. DeFi lending protocol Aave has seen the most loan liquidations among lending platforms.

DeFi liquidations in the last 24 hours nearing alarming multi-month high levels

According to data from OKLink, DeFi lending liquidations in the last 24 hours have reached levels last seen in December last year. There have been over $39 million in DeFi liquidations across DeFi lending protocols. Ethereum based lending protocol, Aave has been the single biggest contributor to the metric having seen over $25 million worth of liquidations (over 60% of the total).

The daily move in liquidation has surpassed the total DeFi liquidations recorded in October and November which recorded $32.48 million and $33.77 million respectively according to data from The Block. However, the highest liquidations recorded on DeFi platforms was in May last year which saw $1.33 billion in liquidation.

DeFi lending liquidation has parallels with traditional bank loans. It is similar to how banks liquidate a borrower’s collateral to pay off loans in case of default to cover the loan. DeFi lending platforms allow users to deposit their cryptocurrency as collateral and borrow against it. Liquidations occur when the price of the collateral reaches the liquidation price and the protocol sells off the asset to pay off the loan automatically.

What has caused the current liquidation cascade?

The current liquidation has been spurred on by market volatility. The crypto market cap dropped 11.23% to currently stand at $1.81 trillion per Coinmarketcap (CMC) data. The sharp drop has wiped off over $230 from the crypto market. Ethereum, the major facilitator of DeFi lending platforms, saw its price drop 13.79% to currently be trading at around $2,700.

The market bloodbath has also seen massive liquidations recorded in the crypto derivatives market. At the time of writing, the crypto futures market has recorded over $875 million per data from Coinglass. Over 85% of the liquidations have been long positions getting wiped out.

The crypto market crash has been attributed to fear, uncertainty, and doubt emanating from various recent regulatory announcements about crypto. Russia revealed plans to ban the use of crypto and crypto mining. The US Securities and Exchange Commission also recently stated that it would focus on regulating crypto exchanges in 2022.

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Olivia Brooke