- Ethereum's sudden drop is wreaking havoc.
- One whale with a large loan on Sky got liquidated.
- Others could follow if Ethereum's price continues to fall.
A heavyweight DeFi user lost $74 million on Sunday after Ethereum’s sudden price drop caused them to default on a large loan.
The whale took out the loan some time ago against a large stash of Ether tokens on Sky, the DeFi protocol.
During the crypto market rout on Sunday Ethereum tumbled 20% in a matter of hours.
The drop meant the value of the whale’s Ethereum collateral got too close to the value of the borrowed assets.
At 11pm London time, the Sky protocol began to put up the whale’s collateral for sale. Liquidators moved in and sold $74 million worth of Ether. MakerDAO changed its name to Sky in August.
When the value of a user’s collateral drops too low, the Sky protocol puts up the collateral for sale to ensure it doesn’t accrue bad debt.
Market rout
The case reveals how Ethereum’s plummeting price is catching even savvy DeFi investors off guard.
It also highlights the programmatic nature of DeFi protocols, which don’t rely on any outside intervention to function.
Ethereum fell to a low of $1,431 early Monday morning after US President Donald Trump confirmed his commitment to a punishing tariff regime on dozens of nations.
Investors, fearing a US and even a global recession and rising prices, bailed out of risk-on assets such as stocks and cryptocurrencies.
It’s Ethereum’s lowest price in more than two years.
Sky lets users lock up volatile crypto, like Bitcoin or Ether, and creates and lends out its DAI stablecoin in return.
It is similar to DeFi lenders, like Aave. While Aave matches borrowers and lenders, Sky acts as the sole lender on the protocol.
Close calls
Several large borrowers on Sky have narrowly avoided liquidation in recent weeks.
At the end of March, the whale who was liquidated yesterday, along with another who had borrowed $41 million DAI from MakerDAO, came close to having their loans liquidated.
They paid down some of their debt and topped up their collateral at the last minute.
Another whale with a $144 million DAI loan was also approaching liquidation on Sunday until they deposited 60,000 Ether worth almost $90 million to top up their collateral.
That whale’s loan is now safe unless Ether falls below $912 — a 38% drop.
When large DeFi liquidations occur they push the price of the collateral asset down, potentially triggering more liquidations and setting off a domino effect.
Amid Ethereum’s Sunday price fall, several lenders on Aave have been liquidated for a combined $90 million.
Things could get even uglier if Ethereum’s price continues to fall.
Some $324 million worth of Ethereum backing loans on Sky is set to be liquidated if the asset’s price falls below $1,200.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
