Ethereum’s Sharp Decline Sparks DeFi Liquidation Fears, Putting $130M-Backed Loan at Risk

Ethereum (ETH) plunged nearly 10% on Monday, falling to $1,820 and triggering concerns over a major decentralized finance (DeFi) loan on Sky (formerly Maker) that is on the verge of liquidation.

The borrower had secured a $74 million DAI stablecoin loan using 65,680 ETH as collateral—worth about $130 million earlier in the day. However, as ETH’s price dropped below the loan’s liquidation threshold of just over $1,900, the risk of forced selling escalated.

Blockchain data from Debank shows the borrower moved quickly to avoid liquidation, withdrawing 2,000 ETH (approximately $4 million) from Bitfinex and depositing it into the Maker vault. Later, they withdrew $1.6 million in USDT from Binance, converted it into DAI, and used it to reduce their outstanding loan balance to $73.1 million.

Despite these last-minute efforts, the revised liquidation price now stands at $1,836, still uncomfortably close as ETH recently traded around $1,870.

DeFi Liquidation Risks Mount as ETH Slides

This at-risk loan is just one of many vulnerable to Ethereum’s decline. Data from DefiLlama shows that $13.6 million in DeFi loans could be liquidated if ETH falls to $1,857, while another $117 million faces liquidation at $1,780. If ETH continues its downward spiral and drops another 20%, approximately $366 million in DeFi debt could be forced into liquidation.

Large-scale liquidations in DeFi often create a cascading effect, as protocols automatically sell off collateral from failing loans, adding to the market’s selling pressure. With ETH struggling to find support, traders are closely watching whether these liquidation levels will trigger further volatility.