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.RelatedSHIB Devs Pushing Businesses Away from Joining Shibarium, Here’s How
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%.