DeFi lending protocols processed over $341 million in liquidations on August 5.
More than half of all liquidations ever recorded on Aave v3, the leading DeFi lending marketplace, have occurred in the past 24 hours amid a violent cryptocurrency market crash.
On July 5, $253.4 million worth of positions were liquidated on Aave v3, bringing the cumulative value of margin calls executed on the protocol to $428.9 million, according to Blockanalitica. Thus, 59% of all recorded Aave v3 liquidations occurred within 24 hours.
Wrapped ETH (WETH) accounted for $146.7 million in liquidations on the platform, followed by Wrapped stETH (wstETH) with $68.4 million and Wrapped Bitcoin (WBTC) with $24.3 million.
Large margin calls briefly pushed up the interest rates Aave pays on ETH deposits to around 14%, but rates have since fallen back to 2% after digital asset markets staged a modest rebound.
Markets are collapsing
The sell-offs were triggered by a violent wave of selling in cryptocurrency markets, which coincided with bloodshed on major stock markets.
Bitcoin fell 13% in 24 hours, while Ethereum fell 20% and Solana fell 16%. The combined market collapsed 13% over the period, dropping below $2 trillion for the first time since February.
Meanwhile, Japan’s Nikkei 225 fell 12.4%, South Korea’s KOSPI fell 8.77% and Taiwan’s Taiex fell 8.35%.
DeFi Margin Calls
Aave users weren’t the only ones experiencing heavy margin calls, with rival DeFi lending protocols also seeing an increase in liquidations.
MakerDAO’s Spark protocol also saw record liquidations, with $35 million worth of positions wiped out in 24 hours, or 80% of the total liquidations processed by the platform. Maker’s DAI stablecoin saw $9.79 million worth of margin calls during the same time frame.
Compound saw $34.8 million in liquidations, which equates to 18.7% of the protocol’s lifetime margin calls. WBTC accounted for $22 million in collateral seized, followed by WETH with $9.37 million and Chainlink (LINK) with $2.85 million.
According to The Block, Morpho Blue also took in notable margin calls worth $18.1 million.
According to CoinGecko, Lido’s liquid staking token, stETH, has lost significant ground against ETH amid the carnage. The price of stETH dropped from over 0.999 ETH to a low of 0.983 ETH, but has since recovered to 0.99 ETH.
An analysis published by Santiment in June suggests that heavy liquidations on DeFi protocols could signal that the end of the cryptocurrency market capitulation could be near.
“Historically, when Aave and Compound liquidations spike… they are immediately followed by market rallies, due to immediate forced selling followed by opportunistic buying,” Santiment said. “Bullish traders are waiting for these liquidations as a sign that BTC can quickly rebound.”
The broader DeFi sector’s TVL also fell to $111.5 billion, its lowest level since February. More than $24 billion was wiped out of DeFi protocols in a single day, a 17% drop, according to DeFi Llama.
