The decentralized lending market is booming, with 'high-risk' loans surging to over two-year highs, sparking concerns of liquidation cascades and volatility.
Large liquidations can impact the collateral value, putting more loans at risk of liquidation, creating a downward price spiral, which can lead to bad depth and losses to lenders.
The total amount of high-risk loans, defined as those within 5% of their liquidation price, rose to $55 million Wednesday, reaching the highest since June 2022.
Bad debt can negatively impact market liquidity, making it difficult to trade large orders at stable prices, preventing lenders from adding new liquidity.
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