The savage sell-off that took place in mid-May fueled volatility in the markets and led to sell-offs among numerous decentralized financial protocols. Like an earthquake, the market crash exacerbated the largest sell-off wave in DeFi’s history. The market experienced a greater amount of sell-off on May 19 than in the past two years in the DeFi space.
As part of the biweekly Market Insights newsletter, Cointelegraph Consulting partnered with Covalent to investigate the Aave, Compound and Maker liquidations. While the three DeFi protocols account for almost 50% of all the total value of DeFi locked, according For DappRadar, they saw liquidations hitting a record high of more than $ 1.17 billion in collateral recently.
The largest settlement day so far was May 19, as the three protocols together witnessed the settlement of $ 377 million worth of collateral. Aave represents $ 170 million, while Compound is not far behind with $ 147 million in liquidations, and Maker represents $ 60 million in liquidations.
The data reveals that the dynamics of recent sell-offs bear a striking resemblance to tsunami waves, the second of which occurred on May 23, when the price of Ether (ETH) plunged to $ 1,925 from its all-time high of $ 4,332. The day marks more than $ 160 million in liquidations, with Compound outperforming Aave for liquidated value.
Compound liquidations also hit a new record. Previously, the protocol faced more than $ 88 million liquidated in November as a result of the sudden surge in prices of the Dai stablecoin.
The recent wave of liquidations was also the largest in terms of the number of liquidations. The data indicates that there have been a total of 13,323 settlements in the history of the protocols studied, and more than a third of the total number of settlements across the top three DeFi platforms came as a result of recent market turmoil.
Of those 5,012 liquidations that occurred after prices began to fall on May 19, 64% came from Aave, 29% from Compound and 7% from Maker. In particular, more settlements occurred on May 23 than on May 19, which is not correlated with data on the value settled through the protocols.
There have been a total of 418 custodians throughout the history of the three protocols, but the top five account for more than 57% of total settlements and the top 25 settlers account for more than 91% of all settlements. The biggest guardian has liquidated more than 220 million dollars in the three protocols.
Similarly, there have been 4,148 liquidated users across the three protocols, with the largest directorate facing a liquidation of $ 72 million. The top 10 settled users represent more than 33% of total settlements. The data indicates that there have been 169 addresses with an excess of $ 1 million settled.
The recent market crash was proof of DeFi’s viability. Despite the losses, the protocols have survived the stress test. Aave’s TVL passing the $ 20 billion mark provides evidence of positive user sentiment toward the prospects of the protocol.
However, as it moves toward an ever-increasing rate of DeFi adoption, it would be important for protocols to introduce mechanisms that protect users from unpredictable losses of funds, as well as educate them on the underlying risks.
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