Ethereum plummets, triggering Compound's largest liquidation in nearly a year.

Compound liquidated $2.5 million worth of collateral on March 8, marking the highest amount since the launch of its V2 lending protocol in May last year. Additionally, outstanding debts across the three major DeFi protocols decreased by 3.1% compared to last week, which may suggest that investors are reducing their financial leverage amid global market volatility.

Compound Experiences Largest Liquidation

Over the weekend, the price of Ether (ETH) plummeted from $250 to $200. As most borrowers on platforms tend to use ETH as collateral, the sharp price drop in a short period of time resulted in many collateral values not being sufficient to cover their debts, triggering the liquidation mechanism. Other decentralized lending protocols MakerDAO and dYdX also experienced liquidation peaks during the same period, but the liquidation situation on these protocols was not as severe as on Compound.

Tarun Chitra, CEO of decentralized finance (DeFi) simulation platform Gauntlet Networks, pointed out:

"I think it is mainly because Compound has a more aggressive collateral ratio and the protocol liquidates more efficiently, as the protocol is immediately liquidated by the community without needing to go through an auction."

Markets Lower Financial Leverage

Unpaid loans on the three platforms Compound, MakerDAO, and dYdX were also affected over the weekend, dropping from $75,042,115 to $72,648,749, a decrease of approximately 3.1%. This situation reflects investors' deleveraging of portfolios as global market turmoil intensifies.

In addition to ETH, the price of BTC also dropped from above $9,000 to below $8,000 over the weekend, and the daily trading volume of CME Bitcoin futures hit a low point for 2020 last Friday.Furthermore, stock and commodity markets are also in a state of turmoil. Last weekend, global oil prices plummeted by 30%, while on the other hand, the yield on the U.S. 10-year Treasury bond fell below 1% for the first time.Tarun Chitra commented:

"Everyone is lowering financial leverage simultaneously, and liquidation is just a lagging indicator." (Note: A lagging indicator refers to a specific variable that changes in response to significant events after they have occurred)

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