ETH Price Drop Could Trigger $336M DeFi Liquidations

Ether (ETH) has experienced a significant decline in recent months, raising concerns about potential liquidations in the decentralized finance (DeFi) sector. According to Kevin Rusher, the founder of the real-world asset (RWA) lending platform RAAC, a further 20% drop in ETH's price could trigger a cascade of liquidations amounting to $336 million. This would be a significant event for the DeFi ecosystem, as liquidations of this magnitude could cause market instability and further price declines.

Rusher highlighted specific price levels that could trigger these liquidations. If ETH's price falls to $1,857, it could result in $136 million in liquidations. A further decline to $1,780 could lead to an additional $117 million in loan liquidations. The most severe scenario would be a 20% drop to around $1,500, which could liquidate $336 million in DeFi loans, potentially causing a market crash. The main catalyst for this potential crisis is a single $130 million ETH-backed loan in Sky, formerly Maker, which is on the brink of collapse despite efforts by the borrower to add more collateral. This situation underscores the extreme volatility that crypto-backed loans can experience, leading to cascading liquidations that can crash asset prices.

To mitigate such risks, Rusher suggested integrating real-world assets (RWAs) like real estate and gold into the DeFi ecosystem. These assets, known for their stable values, could help offset volatility and prevent cascading liquidations due to overleveraging. By incorporating RWAs, the DeFi sector could achieve a more stable foundation, reducing the impact of price fluctuations on the market. This integration would not only enhance the stability of the DeFi ecosystem but also provide a more reliable framework for lending and borrowing activities.

The current price action of ETH has been disappointing, with a decline of over 15% in the past week and trading well below its 200-day exponential moving average since February. The relative strength index (RSI) is currently at 31, nearing oversold territory, which could signal a potential local bottom and an impending price reversal. Some market analysts have suggested shifting to higher-performing altcoins to maximize profit potential, given ETH's underperformance. However, it is important to note that every investment and trading move involves risk, and individuals should conduct their own research when making decisions.