The crypto industry saw an intense flash crash last week that sent Bitcoin and the aggregated market reeling lower, with BTC’s sharp decline being perpetuated by a cascade of liquidations on popular trading platform BitMEX.
This decline proved to be devastating for the DeFi ecosystem, with a myriad of collateralized loans on popular platforms being liquidated as a result of the unprecedented selloff.
Despite this, BlockFi – one of the most prominent crypto lending platforms – is now noting that their risk management systems were able to prevent users’ loans from being liquidated, acting as a beacon of hope for the rapidly growing crypto finance ecosystem.
Recent crypto crash highlights weak points of DeFi ecosystem
Last week the crypto markets were subjected to a shocking and violent selloff that led many individual cryptocurrencies to post some of their largest one-day losses ever seen.
Ethereum, which had been caught within an intense uptrend prior to the market-wide downturn, plummeted over 50 percent to lows of $85 before rebounding, with this drop coming in tandem with Bitcoin’s decline to lows of $3,500.
For DeFi users, this decline destroyed more than just their crypto holding’s value, with many open collateralized loan positions being liquidated on popular lending platforms.
This elucidated a key weakness within the growing DeFi ecosystem – namely that unprecedented market movements can wreak havoc on the ecosystem.
Naturally, these types of movements are somewhat to be expected within the crypto market, and the recent crash further shows that the DeFi market has a significant way to go before it can provide a viable alternative to the traditional financial system.
Not all hope is lost for DeFi, top platform avoids unnecessary position liquidations
Zac Prince, the CEO of BlockFi – one of the top crypto lending platforms in the industry – recently explained in a note to users that their risk management system withstood this stress test, not allowing any USD loan client collateral to be liquidated below a Bitcoin price of $4,500.
“Last Thursday…there were particularly violent downward price movements in the cryptocurrency market resulting in very limited liquidity. This was handled strategically by our team and risk management system and we did not liquidate USD loan client collateral below a price of ~$4,500.”
He further notes that the platform still remains fully operational and stable despite the recent turbulence and that they will continue growing and operating as normal going forward – being enabled by robust funding that was raised in a Series B raise that closed in January.
Although decentralized finance still has a lot of room to improve, the recent movement in the crypto market highlighted multiple weak points that can now be addressed by leading platforms, ensuring peak stability regardless of market conditions in the future.
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