On August 5, DeFi lending protocols processed over $341 million in liquidations, marking a turbulent day for the crypto market.
Record Liquidations on Aave v3
Aave v3 Liquidations Surge
Aave v3, the leading DeFi lending market, experienced unprecedented liquidations, with $253.4 million worth of positions liquidated in just 24 hours. This accounts for 59% of all liquidations ever recorded on the platform, bringing the total to $428.9 million.
Top Liquidated Assets
Wrapped ETH (WETH) led the liquidations on Aave with $146.7 million, followed by Wrapped stETH (wstETH) at $68.4 million, and Wrapped Bitcoin (WBTC) at $24.3 million. These heavy margin calls temporarily spiked interest rates on ETH deposits to 14%, but rates have since dropped back to 2% as the market modestly recovered.
Crypto Market Turbulence
Market-Wide Sell-Off
The liquidations were triggered by a violent sell-off in the crypto market, mirrored by a significant drop in major stock markets. Bitcoin fell by 13%, Ethereum by 20%, and Solana by 16%, causing the overall crypto market to dip below $2 trillion for the first time since February.
Global Market Impact
Simultaneously, Japan’s Nikkei 225 plummeted 12.4%, South Korea’s KOSPI sank 8.77%, and Taiwan’s Taiex dropped 8.35%, contributing to the global financial turmoil.
DeFi Margin Calls
Other DeFi Protocols Hit Hard
Aave wasn’t the only protocol affected. MakerDAO’s Spark Protocol saw $35 million in liquidations, representing 80% of its total lifetime liquidations. Compound also experienced $34.8 million in margin calls, with WBTC accounting for $22 million, WETH for $9.37 million, and Chainlink (LINK) for $2.85 million.
Additional Liquidations
According to The Block, Morpho Blue hosted $18.1 million in liquidations. Lido’s liquid staking token, stETH, also lost value against ETH, dropping from over 0.999 ETH to a low of 0.983 ETH before rebounding to 0.99 ETH.
Potential Market Rebound
Signs of Capitulation
Analysis by Santiment suggests that such heavy liquidations might signal an end to the market downturn. Historically, spikes in Aave and Compound liquidations are followed by market rebounds, as forced selling is often followed by opportunistic buying.
DeFi Sector Impact
Total Value Locked (TVL) Drops
The broader DeFi sector’s total value locked (TVL) dropped to $111.5 billion, its lowest since February. Over $24 billion was wiped out from DeFi protocols in a single day, marking a 17% decrease, according to DeFi Llama.
Conclusion
The recent wave of liquidations highlights the volatility and interconnectedness of the DeFi and broader crypto markets. Investors should remain vigilant and informed during these uncertain times.
