Debt Cascade

Definition ∞ A debt cascade describes a sequence of liquidations or defaults triggered by a significant market downturn, particularly within leveraged financial systems. In cryptocurrency, this typically occurs when a sudden price drop causes collateralized loans to become undercollateralized, leading to forced sales. These forced sales further depress prices, initiating a feedback loop that can spread across interconnected protocols.
Context ∞ The risk of debt cascades remains a persistent concern in decentralized finance, especially during periods of high market volatility. Recent news frequently reports on protocol stability and the mechanisms designed to mitigate such systemic risks. Analysts closely monitor on-chain liquidation data for indications of potential stress events that could precipitate broader market instability.