The crypto crash of February 22 has led to a record liquidation within the decentralized finance (DeFi) space. Available information shows that this liquidation led to the forceful closure of $24.1 million loans which makes it the second largest liquidation ever in the history of DeFi.
According to DeBank, a crypto data aggregator, Compound witnessed the majority of these liquidations with 60% of it occurring on its system, which translates to roughly $14 million while Aave saw losses of over $5 million.
While this liquidation is a major one, it is still far behind that of November 26 2020 where an unexpected increase in DAI price led to over $90 million in margin calls. Due to this, crypto loan collateral worth over $88 million on Compound protocol was liquidated.
Furthermore, the crypto data aggregator also reported that the total value locked in DeFi dropped to $38.8 billion within the last 24 hours. The over 12% drop is the biggest single drop in a day in the DeFi markets since the 15.4% drop on January 21.
Increased Ethereum gas Fees Could Have led to DeFi Liquidation
Speculations abound on what could have caused these liquidations as many believe it was worsened by the high gas fees charged on Ethereum mainnet. Traders on this network were paying as high as $30 for regular token transfers.
Inevitably, this led to a struggle among crypto users who were trying to outbid one another to make sure their transactions were processed. It is likely that the high traffic in the network prevented traders from quickly closing their position as prices slumped.
This crash affected both margin traders and DeFi users. Users of Kraken, a crypto exchange, are already demanding compensation for the liquidation caused by the crash which made ETH price to fall to as low as $700 on the exchange though it was trading for $1400 on other platforms.
You forcefully liquidated my position at a false price while the app and site were non-functional. You need to refund our money!!!
— singhverse (@cantdoevil) February 22, 2021