This is how the markets relax, and with blockchains, savvy users can all watch live as it goes down.
For the past few days, crypto watchers have been intrigued by two major wallets that appear to be linked and contain $181 million in ether (ETH). They also have collateral in loans that are right on the edge of their ability to pay.
- Most of the debt is on money market Aave (152,098.98 ETH worth $166 million at the time of writing, but the rest is on Compound (14,316.90 ETH worth $15.6 million).
Why it matters: If the price of ether falls further, this debt will be liquidated, unleashing a surge of ether into the market that will drive the price of ether even lower.
Driving the news: The winter is getting colder for crypto as Bitcoin slips below the psychologically charged $20,000 mark early Saturday and Ether briefly dips below $1,000 as investors turn to digital coins. Both have lost over 30% of their value in the last week alone.
With a whale in a dangerous situation In such a position, traders who believe Ether will return to its previous highs in the long-term now have an incentive to sell. If it goes down sharply, large loans like this will be liquidated, driving the price down even further.
- That could be their signal to buy back and increase their total ETH holdings for free, but only after the market’s longs have suffered some serious pain.
- Meanwhile, liquidations at decentralized finance providers are currently increasing, with $250.6 million in liquidations taking place on Aave, Compound, and MakerDAO in the last 7 days, according to Dune Analytics.
A trading account with 165,000 followers noticing the precarious position of 0x493F. Screenshot: @lightcrypto (Twitter)
Details: The wallets in question are 0x493F and 0x7160. For the first wallet, scroll down to Aave v2 and see the biggest credit.
- These wallets appear to be related to each other as they make larger ether transfers here and here from the former to the latter before topping up collateral for compound loans.
One could of course ask: Why not just call the loans? They can’t because the wallets are leveraged for a long time. The owner deposited ETH, borrowed stablecoins, bought more ETH and deposited that to borrow more stablecoins to do it again. Etc.
- ZoomerAnon, from the team at DeFi analytics firm Uniwhales, explained that you can see the wallet repeatedly taking stablecoins like USDT and USDC, sending them to Binance and withdrawing thousands of Ether.
- At the beginning of January, several transactions like this could be observed with Etherscan.
Be smart: Traders leverage long when they think an asset’s price will rise. If this is the case, they can withdraw enough funds to repay their loan, withdraw their collateral, and exit the trade with more underlying asset.
Yes but: It only works when the price of the asset increases.
- These wallets bet Ether would continue to rise in January when it traded above $3,300. Today it barely holds $1,000.
- “He borrowed 96,040 ETH before borrowing any money,” ZoomerAnon told Axios via Telegram.
DeFi lenders are automated. They monitor collateral prices to ensure all loans are properly collateralised. Once the collateral becomes insufficient, these protocols automatically sell the underlying collateral on the open market.
- Whenever a borrower is liquidated, he takes a painful haircut. When they have leveraged their position, this haircut will be multiplied.
Using the numbers: A researcher did the math that the largest position on Aave is liquidated at an ETH price of $982. Uniwhales put its liquidation price at $870.
- ETH would need to drop $212, almost 20%, to trigger this lower price. However, ETH has lost $212 since June 13 and almost $900 since June 1.
The Intrigue: It is speculated that these positions belong to a major Chinese entrepreneur, but it could be operating alone without the sophisticated risk modeling of trading firms and the ability to monitor positions 24/7.
- However, if the owner has liquid funds, they can always buy stablecoins and close out some of the dead positions to avert liquidation.
thought bubble: This may sound like another huge catastrophe awaiting the crypto world, but there is another way to look at it: as a transparent marketplace that works as expected.