A position of over 200,000 ETH on Aave saved in extremis by liquidation

$ 200 million in liquidations threaten DeFi

Those last few weeks, the cryptocurrency market has suffered a severe storm which caused it to plummet to low levels not seen in a long time. The collapse of the Earth ecosystem (LUNA) was the domino that caused it a cascade of eventswhose repercussions continue to be appreciated even today.

The most recent is the Celsius case, one of the largest centralized lending platforms of the market. Impacted by the fall of the UST stablecoin and reported for its poor management of customer assets, Celsius threatens bankruptcy.

However, this is not an isolated case since even the famous investment fund Three Arrow Capital is experiencing difficult days following the liquidations. In addition, the decline in prices forced the entity to sell its positions at a loss to avoid further liquidations.

The sales volumes of these large portfolios are such which dragged the market even further into the abyss. So much so that many DeFi users are now in awkward positions. Loans, relatively secure a few weeks ago, now I’m on the verge of liquidation.

Furthermore, the Aave protocol has been threatened by a wall of potential liquidations for some days. If Ether (ETH) drops below about $ 950, a single address could see it his loan of nearly $ 200 million to be liquidated.

This sword of Damocles hovered over the Aave protocol and threatened the entire cryptocurrency market. Fortunately, the address in question – long suspected to be that of Three Arrow Capital – he made moves to secure his position and thus give new life to the market.

👉 To learn more, our complete guide on Ethereum (ETH) and how does this crypto work?

The address pays off part of your loan

As of June 16, 2021, this address had a loan of $ 167 million contract on the Aave protocol. Insecurity, the guarantee consisted of 200,000 ETH, worth approximately $ 211 million. the health factor (loan safety factor) was 1.08, which meant a simple 8% move on Ether could trigger liquidation.

However, one detail was particularly concerning: who would want to liquidate this position? Indeed, the 5% commission offered to liquidators it would not be enough to compensate for the drop in the price of Ether caused by the liquidation of this sum.

Only one solution: the mysterious individual had to provide capital to repay his loan e secure your position. And that’s exactly what happened: the address in question repaid 25% of the loanor $ 50 million, to reduce the settlement price.

Figure. 1 – Position comparison on Aave as of June 16 and June 18, 2022

As you can see from the screenshot above, the health factor is now at 1.12, while The ether has already dropped by almost 15% from June 16.

This individual performed several similar operations, which you can observe in the screenshot below. Specifically, these consisted of exchange of ETH against USDC to refund them to the protocol. This is how around USDC 30 million was taken out of the position.

pay off with

Figure. 2 -Example of operations performed to secure the position

Also note that we have identified another address linked to this one, and that it also has downloaded several million dollars a loan position on the Compound protocol.

While there are still significant liquidation risks around this position, the individual’s responsiveness was a lifesaver for the ecosystem. This is dangerously threatened bring down the market but most of all, the fault of the Aave protocol.

👉 To go further, our exclusive file: Celsius Network, why and how is the platform collapsing?

Sources: Etherscan, Fig 1: Debank, Fig 2: Debank

About the author: Lilian Aliaga

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Freelance writer located between Paris and Toulouse. I want to share my passion for the world of cryptocurrencies with as many people as possible. I am also interested in technical analysis and trading.
All the articles by Lilian Aliaga.

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