Cryptocurrency loans have surged, a potential warning sign for the cryptocurrency market amid post-election investor optimism.
According to data provided to IntoTheBlock in a November 6 post, the number of high-risk decentralized finance (DeFi) loans has risen sharply since the U. S. presidential election.
high-risk #DeFi loans are backed by volatile assets within 5% of the clearing threshold and are often used by investors to take advantage of potential price volatility.
Although the mass liquidation of high-risk DeFi loans could impact the broader #cryptocurrency market, according to Alexander Sudeikin, co-founder of Evaa Protocol, the first decentralized open network (TON) lending protocol, a rise in cryptocurrency prices will not necessarily lead to a rise in cryptocurrency prices.
Sudeikin told Cointelegraph:
But I don't think the impact of a worst-case scenario is that big, as DeFi has evolved significantly in recent years, especially among large protocols that utilize strong risk management practices.
While decentralized loans are more accessible than traditional bank loans, they carry higher risks due to excessive collateral and the potential volatility of the assets used as collateral.
tokens have fallen in value by 28%.
a wave of DeFi loan liquidations could spur volatility in the underlying asset, but some believe a major market correction is unlikely. The DeFi industry is mature and can stabilize after a sharp downturn, Sudeikin
creased resilience will help mitigate a sharp downturn. For example, we have introduced asset limits, segregated pools and other measures to mitigate such risks. So the increase in high-risk loans may not have a significant impact on the short-term cryptocurrency market.
According to IntoTheBlock, on October 16, DeFi's high-risk loans reached a more than two-year high of $ 5 million.
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