According to data tracked by analysis firm IntoTheBlock, the total amount of “high-risk loans” in the decentralized lending market rose to $55 million on Wednesday, reaching the highest level since June 2022.
Source:
IntoTheBlock
Cryptocurrency traders typically borrow from decentralized lending platforms by collateralizing digital assets. The risk lies in the fact that if the value of the collateral falls too much, the protocol will liquidate the debt by selling the collateral. High-risk loans refer to those loans that are only 5% away from the liquidation price. Once the price of the collateral falls to the liquidation price (a 5% drop), its value will be insufficient to support the loan, triggering liquidation.
Therefore, the surge in these high-risk loans is worth attention as it may lead to a chain of liquidations. IntoTheBlock states that large-scale liquidation activities impact the value of collateral, causing more loans to face liquidation risks and resulting in a downward spiral in prices.
Source
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