Crypto liquidations are forced sales of digital asset collateral in decentralized finance (DeFi) protocols or leveraged trading platforms. This occurs when the value of a borrower’s collateral falls below a predetermined threshold, triggering an automatic sale to cover the outstanding debt. Liquidations are a risk-management mechanism designed to protect lenders from losses due to asset price depreciation.
Context
News about crypto liquidations frequently appears during periods of high market volatility, signaling significant downward price pressure and potential cascading effects within DeFi ecosystems. Understanding these events is vital for assessing market stability, the health of leveraged positions, and the systemic risks inherent in highly leveraged digital asset markets.
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