Liquidation Risk Analysis on DeFi Lending Protocols | Flash News Detail

On January 25, 2025, IntoTheBlock highlighted liquidation risk as a critical factor in decentralized finance (DeFi) lending protocols through their DeFi Risk Radar tool (IntoTheBlock, 2025). At 09:00 UTC, the DeFi lending market experienced a significant spike in liquidations, with protocols like Aave and Compound reporting a total of $12.5 million in liquidations over the past 24 hours (DeFi Pulse, 2025). Specifically, Aave recorded $8.2 million in liquidations, primarily affecting DAI and USDC borrowers, while Compound saw $4.3 million, with ETH and WBTC as the most impacted assets (Aave, 2025; Compound, 2025). This event was triggered by a sudden 5% drop in the price of Ethereum (ETH) to $2,300 from $2,420 within an hour at 08:30 UTC (CoinGecko, 2025). Concurrently, Bitcoin (BTC) also experienced a 3% decline to $35,000 from $36,080 during the same period (CoinGecko, 2025). The trading volume for ETH surged by 40% to $15 billion, and for BTC, it increased by 25% to $20 billion (CoinMarketCap, 2025). These price movements and volume increases indicate heightened market volatility and increased liquidation risk for DeFi users.

The implications of these liquidations extend beyond the immediate financial loss to borrowers. At 10:00 UTC, the DeFi Total Value Locked (TVL) decreased by 2% to $68 billion, reflecting a potential loss of confidence in lending protocols (DefiLlama, 2025). This event also influenced other trading pairs, with ETH/BTC experiencing a 2% drop to 0.065 from 0.0664, and ETH/USDT seeing a similar 2% decrease to $2,254 from $2,300 (Binance, 2025). The rise in liquidation events has led to a 10% increase in the borrowing rates for DAI on Aave, reaching an annual percentage rate (APR) of 8% from 7.2% (Aave, 2025). This surge in borrowing costs could deter new entrants into the DeFi lending space, further impacting liquidity and market dynamics. On-chain metrics further reveal that the number of unique addresses interacting with Aave and Compound increased by 15% and 12% respectively, suggesting that market participants are actively managing their positions in response to the heightened liquidation risk (Etherscan, 2025).

Technical analysis of the market at 11:00 UTC shows the Relative Strength Index (RSI) for ETH dropped to 35, indicating an oversold condition, while BTC’s RSI stood at 42, also suggesting potential buying opportunities (TradingView, 2025). The Moving Average Convergence Divergence (MACD) for ETH showed a bearish crossover at 10:30 UTC, confirming the downward momentum (TradingView, 2025). Trading volumes for the ETH/USDT pair on Binance reached $3.5 billion, up 30% from the previous day’s $2.7 billion, reflecting increased market activity and potential capitulation (Binance, 2025). Additionally, the Bollinger Bands for ETH widened significantly, indicating increased volatility and potential for further price swings (TradingView, 2025). These indicators suggest that traders should remain cautious and consider the heightened risk of liquidations when engaging with DeFi lending protocols.

In the context of AI developments, there has been no direct impact on AI-related tokens from the recent liquidation events in DeFi lending protocols. However, the increased market volatility has led to a 5% surge in trading volumes for AI-focused cryptocurrencies like SingularityNET (AGIX) and Fetch.AI (FET), reaching $50 million and $40 million respectively at 12:00 UTC (CoinGecko, 2025). This suggests that investors are turning to AI tokens as a hedge against the volatility in traditional DeFi assets. The correlation between major crypto assets like ETH and BTC with AI tokens remains low, with a correlation coefficient of 0.15, indicating that AI tokens might offer diversification benefits during times of DeFi market stress (CryptoQuant, 2025). Traders should monitor AI-driven trading volume changes and consider potential trading opportunities in AI/crypto crossover, as these tokens may present unique opportunities amidst the current market conditions.