Maker Vault Owner Stands To Lose Nearly $500 Million

$500 Million in ETH Could be Wiped Off

According to data by Block Analytical, a Maker Vault holder dubbed “7 Siblings”, could see their positions liquidated, causing a colossal loss worth nearly $500 million in ETH if they do not top up their vault. Ethereum, the second-largest crypto by market capitalization, is struggling to stay above the $2400 range, which is driving the potential liquidation.

A liquidation of such magnitude could lead to increased sell pressure for ETH, causing its price to tank further. But before going deeper into the impact of the liquidation, it’s important to know how Maker works.

Maker is a cryptocurrency lending protocol built on the Ethereum network. The project has a decentralized stablecoin called DAI, which is pegged 1:1 to the United States dollar and is used to facilitate collateral-based loans without a third party.

Users looking to mint DAI would need to deposit a collateral asset – in this case, ETH, or any token accepted by the protocol. Maker employs overcollateralized lending, meaning that if an individual wants to borrow 100 DAI, they would need to deposit 1.3, 1.4, or 1.5 times more ETH (or any approved crypto) into the vault.

This over-collateralization is necessary due to the volatility of cryptocurrency. But things could quickly go sideways for a holder if the value of the collateral deposited crashes below the acceptable threshold. The holder would need to add more collateral to avoid liquidation. However, if no such action is taken, the protocol automatically liquidates the collateral, which is then auctioned. In the case of 7 Siblings, the liquidation price is in the $2100 range. But the holder’s position could be wiped off if the price of Ether plunges below $2100.

If that happens, the attendant sell pressure occasioned by Maker auctioning off $500 million in ETH could exert further downward pressure on ETH; this comes at a time when the market is still reeling from a selloff that followed Russia’s invasion of Ukraine. This continued price plunge for ETH could cause a cascade of liquidations across other investment positions, be they futures, margin contracts, or debt-collateralized positions.

Russia-Ukraine Crisis Triggers Crypto Market Crash

Meanwhile, the crisis between Russia and Ukraine has negatively impacted the broader crypto market. The prices of Bitcoin, Ethereum, and other crypto assets crashed after Russia launched a military attack on Ukraine. This crypto price crash mirrors the selloffs seen around the broader capital market, with only gold staying immune to panic selling by investors.

For the crypto market, however, the recent global strife puts even more pressure on token prices, most of which have taken a beating since the start of the year. The decline may also stoke fears of a prolonged bear winter for virtual currencies.

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