Ethereum on-chain lending markets see second-largest liquidations ever amid ETH price plunge

The month of August has concluded and with this, the monthly total liquidations in on-chain lending markets on Ethereum have reached upwards of $436 million. Aave was responsible for $289 million, or 66% of the total, of these liquidations. 

This represents the second largest monthly on-chain lending market liquidations in history, behind May 2021, which at the time saw about $671 million in liquidations.

What might have caused these abnormally high sums of on-chain lending liquidations? The answer is painfully obvious: The price of ETH recorded a 22% month-over-month decrease in August, even going as low as 35% at the month’s lowest price point.

As ETH is widely used as collateral in DeFi lending platforms, especially on Aave, the price drop led to a decrease in collateral value for many loans. This triggered a wave of liquidations as loan-to-value ratios fell below the required thresholds. The cascade effect of liquidations further exacerbated the situation, contributing to the high volume of liquidations observed.

On-chain participants shouldn’t feel too lonely in this regard, though, as the cascading effects of the market’s drastic selloffs have not isolated themselves to just on-chain lending markets.

As discussed previously, the market’s poor price performance in August has also caused seven different days of futures long liquidations worth over $150 million.

On-chain lending, perps on CEX, perps on DEX, on-chain activity, gas fees, you name it — the vast majority of crypto sectors have been victims of the brutal down-trending price action we have experienced in recent months.

This is an excerpt from The Block's Data & Insights newsletter. Dig into the numbers making up the industry's most thought-provoking trends.