Ethereum (ETH) Prices Plunge 10%, Exposing $366M in DeFi Liquidation Risk

Ethereum prices have taken a sharp downturn in recent trading. The cryptocurrency fell approximately 10% on Monday, touching $1,820.

Ethereum price slid further on Monday, losing 10% to touch $1,820. This was ETH’s lowest valuation since December 2023.

The crypto price action had massive implications for decentralized finance markets, which rely heavily on ETH for various lending operations.

One borrower on Sky (previously called Maker) had a $74 million DAI loan backed by ETH. The loan used 65,680 ETH tokens as collateral, which represented about $130 million in value before the recent price drop.

The loan’s terms set its liquidation threshold just above the $1,900 mark. When ETH prices broke below this level, liquidation risk became immediate.

According to blockchain records, the borrower acted quickly to protect their position. They transferred 2,000 ETH from Bitfinex to bolster their collateral. This emergency action added approximately $4 million in additional backing.

However, continued price drops forced further defensive measures. The borrower subsequently withdrew $1.6 million in USDT from Binance, converted these funds to DAI, and paid down part of their loan balance.

These efforts reduced the total debt to $73.1 million. The new liquidation price now sits at $1,836, still dangerously close to current trading levels.

Liquidation Risk

The risk extends beyond this single loan. DefiLlama data indicates $13.6 million in loans face liquidation if ETH hits $1,857. Another $117 million would be liquidated at the $1,780 level.

The total exposure grows to $366 million if ETH drops an additional 20%.

Liquidations create compounding market pressure. When loans are liquidated, protocols sell the collateral, adding to selling pressure. This pattern can create a downward price spiral. Each liquidation potentially triggers others as prices continue falling.

Market sentiment metrics from Glassnode show that only half of ETH holders remain in profit positions, highlighting the growing pessimism.

This marks a dramatic shift from early 2023, when 82% of holders were profitable. Many investors now face difficult decisions about holding or selling at a loss.

Technical indicators support the bearish view. ETH has traded below the Ichimoku Cloud since January 25, signaling continued downward momentum.

If current support fails, analysts at Chainalysis point to $1,700 as the next critical level. A breach below this could trigger those “catastrophic liquidations” many analysts fear.

Some price projections suggest $1,300 as a possible bottom target. This would represent a further 30% decline from current levels.

Yet some counter-indicators suggest potential stabilization. Last week saw $1.8 billion in ETH move from exchanges to private wallets—the largest such outflow since December 2022. Such movements typically indicate long-term accumulation rather than selling preparation.

If buyer demand returns, some optimistic analysts, like PlanB, project possible recovery to $4,045—a 120% increase from today’s prices.

However, near-term prospects remain challenged. Bear market sentiment continues to dominate trading activity for Ethereum and the broader crypto market.