Data from some on-chain scanners bring to light possible future mass liquidations on Ethereum. Could this be the start of a DeFi chain crash?
The decentralized financial protocols belonging to the cryptocurrency sector are going through a particularly difficult moment due to the strong downward trend that has been characterizing the price of Ethereum for months now. Many are debating the future of the DeFi sector, with data on-chain seeming to signal the beginning of a possible systemic collapse of the sector.
The weight of Ethereum in the crypto world
If Bitcoin is the father of cryptocurrencies, Ethereum is undoubtedly the mother. The DeFi phenomenon was born following the association of the smart contract concept with the blockchain technology thanks to the idea of Vitalik Buterin.
Through this construction it was possible for the developers to create a real alternative financial world and partially independent from the traditional one. Other blockchains also have the same goal but the data speak for themselves: Ethereum continues to represent the center of reference for DeFi protocols.
Precisely for this reason the latter is going through one of the darkest periods since their creation. Indeed, the price of ETH, the native currency of the ecosystem, has continued to record important losses for months now. The problem is that after the completion of the merge, many expected a sort of "halving effect" on the price of Ethereum, but this did not happen. For this reason, experts are predicting strong liquidations in the coming months: those confident in the merger effect who had bought the cryptocurrency en masse now find themselves with loss-making positions and for many these could also occur forced liquidations.
On-chain data highlights possible forced liquidations
Several on-chain analysis platforms highlight anomalies in the data related to the Total Value Locked (TVL) for some of the most renowned DeFi ecosystems. The TVL represents the sum of the assets deposited in a decentralized protocol. Specifically, a dangerous forced liquidation in the $700 zone on Ethereum appears to be approaching. The center of the storm appears to be located in the decentralized and open spur financial protocol of AAVE, a reference of central importance for the sector. As if that weren’t enough, a renowned group of hackers illegitimately withdrew over 180,000 ETH from FTX and also divided the stolen goods into multiple wallets. According to analytical sources in the sector, the group seems intent on liquidating the sum. The liquidation of these large amounts of ETH could cause a dump of the Etherem price and consequently a shock of the crypto industry.
Future scenarios for the DeFi world
The decentralized financial system has now become structurally quite complex and interconnected. DeFi protocols are interconnected by financial relationships often mismanaged by the administration, as recent scandals have demonstrated. The risk could therefore be that of a chain collapse: if it is true that the reserves of these ecosystems have been structured in an ungenuine way, excessively speculative or according to relations of convenience, the collapse of a protocol could trigger that of attached platforms and so on. For example, it is a common opinion that with the collapse of FTX (although belonging to CeFi) in the coming months we will be able to witness other important bankruptcies of realities participating in the crypto system.
Original article published on Money.it Italy 2022-11-28 17:30:00.
Original title: Perché sarà Ethereum a far crollare il settore delle criptovalute
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