In a recent report, market intelligence platform IntoTheBlock underscores the crucial role of liquidation blocks when evaluating risk in decentralized finance (DeFi) protocols. It highlighted that overlooking this metric could expose investors to the risk of insufficient collateral for loan repayment, especially if a liquidation remains open for an extended period.
🧮 Evaluating risk in DeFi protocols? Don't overlook this crucial metric: the number of blocks needed to perform a liquidation. As a liquidation remains open longer, a price decrease in assets could lead to insufficient collateral for loan repayment. https://t.co/BfMMBOHesb… pic.twitter.com/4pYtOcrVd7
— IntoTheBlock (@intotheblock) May 31, 2023
Liquidation blocks refer to the number of blocks required for the liquidation process to complete. The report highlights that protocols with shorter liquidation periods offer increased security and resilience against sudden asset price decreases. This is crucial as longer liquidation periods can potentially lead to a collateral shortfall, endangering loan repayment.
In another thread, IntoTheBlock emphasizes the importance of the Health Factor Distribution indicator in assessing risks within DeFi protocols. The indicator provides a comprehensive view of the number of loans facing liquidation within a protocol, enabling investors to gauge potential risks.
📊 The Health Factor Distribution indicator offers valuable insights into DeFi protocol risks. As the number of loans facing liquidation rises, depositors face higher investment risks #DeFi
— IntoTheBlock (@intotheblock) May 23, 2023
In a related development regarding liquidations in the broader crypto market, data from CoinGlass, a well-known crypto derivative data analysis platform, shows that a staggering 39,934 traders have been liquidated in the last 24 hours.
The cumulative amount lost by these traders is $88.69 million, with the most significant single-order liquidation occurring on the OKX exchange for the ETH-USD-SWAP pair, with a value of $2.06 million.
The recently liquidated $88.69 million is a much lower figure compared to another liquidation event reported by Coin Edition earlier this year. Specifically, the report stated that 80,922 traders lost $243 million within a 24-hour window, with $185 million occurring in under 45 minutes.
