Liquidation is the process of converting an asset into cash. In the context of digital assets, particularly within leveraged trading or DeFi protocols, it refers to the forced sale of collateral when a loan’s value falls below a specified threshold. This mechanism is designed to protect lenders by ensuring the loan can be repaid. However, large-scale liquidations can trigger significant price declines in the underlying asset.
Context
The current context for liquidations in the digital asset market is often tied to periods of extreme price volatility. News reports frequently highlight cascading liquidations on derivatives exchanges or within decentralized lending protocols, which can exacerbate downward price pressure. Understanding liquidation triggers and their potential impact is crucial for assessing market stability and risk.
The crypto market has bounced back strongly, recovering $380 billion after a record $19 billion liquidation event, driven by easing US-China trade tensions.
The crypto market experienced a significant liquidation event, wiping out over $1.5 billion in leveraged positions and causing major asset prices to fall.
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