Originally published on: November 08, 2024
The world of cryptocurrency is abuzz with the surge in value of decentralized finance (DeFi) loans, raising concerns about potential risks in the crypto market post-US presidential election.
Since the election, high-risk DeFi loans have been on the rise, as reported by IntoTheBlock. These loans are backed by volatile assets close to their liquidation threshold, often used by investors to leverage price volatility.
According to Alexander Sudeykin, co-founder of Evaa Protocol, while decentralized loans offer easy access compared to traditional bank loans, they come with higher risks due to overcollateralization and asset volatility.
A cautionary tale was seen in June when Curve Finance founder Michael Egorov faced liquidation of over $100 million in DeFi loans following a hack attempt, causing CRV token prices to plummet by 28%.
Despite the risks associated with high-risk DeFi loans, experts believe that a wave of liquidations is unlikely to trigger a major market correction. The maturity of the DeFi industry may help stabilize it against sudden downturns.
Recent data from IntoTheBlock shows high-risk DeFi loans hitting a two-year high of over $5 million post-election. Platforms like Benqi alone have nearly $5 million in high-risk loans, out of a total debt issuance of over $115 million.
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