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As clouds gathered over the crypto landscape, a flash tore through the sky: Ethereum, an essential pillar, lost 14% of its value in 24 hours. A brutal drop, amplified by the liquidation of an Ethereum whale for 106 million dollars on Sky, the DeFi platform relaunched in August. Behind these numbers lie cold mechanisms, ruthless mathematical ratios, and a chain reaction that cruelly highlights the fragility of decentralized ecosystems. What if this debacle reflects a market still too sensitive to geopolitical shocks, like Donald Trump’s recent customs announcements? A dive into the guts of an algorithmic carnage.
Sky, the invisible arena where crypto whales are devoured
On Sky, the rules of the game are clear and brutal: users deposit Ethereum as collateral to borrow DAI, the stablecoin pegged to the dollar.
The protocol imposes a strict over-collateralization ratio — generally 150% or more. Specifically, to borrow 100 DAI, one must block the equivalent of $150 in ETH.
On April 6, the crypto ETH collapses. The whale’s position, 67,570 ETH, falls below the critical threshold of 144%. Result: automatic liquidation.
The seized ETH is sold at auction to cover the debt, leaving the investor in tatters. Worse, another whale, with 56,995 ETH (91 million $), now faces the same fate.
These massive liquidations act like destructive waves: each forced sale amplifies the downward pressure, feeding a vicious cycle.
But how can a decentralized protocol trigger such a catastrophe? The answer lies in its code, blind to emotions.
Sky does not negotiate, does not stall. When crypto prices plummet, ratios fracture, and liquidators — mostly robots — swoop down like vultures. An unrelenting mechanism, where humans have no say.
Ethereum under pressure
The price of crypto ETH hit $1,547, its lowest since October 2023. A troubling setback, as the market struggled to emerge from the shadow of FTX.
At 68% below its peak in 2021, Ethereum seems trapped in a stubborn bearish narrative. However, this drop is not just about numbers: it reveals the structural flaws of DeFi.
In 24 hours, nearly one billion dollars in positions were liquidated on derivative markets, most of which pertained to crypto ETH.
These figures remind us of an obvious truth: DeFi, despite its promises of autonomy, remains dependent on volatility.
Over-collateralized loans, designed to limit risks, become traps when assets collapse. A paradox that raises the question: how far can we automate trust?
Faced with this storm, investors have two options: inject more collateral or suffer the fate of the whale. But in a climate of widespread distrust — bolstered by macroeconomic fears — caution prevails. Result: liquidations follow one another, and the crypto market holds its breath.
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Fascinated by Bitcoin since 2017, Evariste has continuously researched the subject. While his initial interest was in trading, he now actively seeks to understand all advances centered on cryptocurrencies. As an editor, he strives to consistently deliver high-quality work that reflects the state of the sector as a whole.
DISCLAIMER
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.
