PANews reported on October 18 that according to CoinDesk, according to data tracked by the analysis company IntoTheBlock, the total amount of high-risk crypto loans (defined as loans within 5% of the liquidation price) rose to US$55 million on Wednesday, reaching the highest level since June 2022. Cryptocurrency traders usually obtain loans from decentralized lending platforms by locking collateral in the form of digital assets. The risk here is that if the value of the collateral falls too much, the protocol will liquidate the debt by selling the collateral. A loan within 5% of the liquidation price means that if the price of the collateral falls by 5%, it will no longer cover the loan, triggering liquidation.
“Massive liquidations could impact collateral values, exposing more loans to liquidation risk, creating a downward price spiral,” IntoTheBlock said in a market update. “A rapid market decline could result in insufficient collateral to repay loans, leading to deep non-performing and losses for lenders.” IntoTheBlock added that non-performing loans would negatively impact market liquidity, making it difficult to trade large orders at stable prices.