US Elections Trigger Surge in High-Risk Crypto Lending

The volume of outstanding high-risk loans in DeFi has surpassed $5 million, recovering after the threat of a complete liquidation of Curve founder Mikhail Egorov’s position, which exceeded $100 million.

High-risk DeFi loans are surging as market sentiment drives demand for leverage.

However, with the U.S. elections just concluded, heightened volatility remains a concern. Large events like this can create a lot of volatility, potentially putting pressure on leveraged positions. pic.twitter.com/KIrOwRRrMr

— IntoTheBlock (@intotheblock) November 7, 2024

The last time such high levels were observed was in July 2022.

Benqi alone has issued over $115 million in loans, of which $5 million are considered “high-risk.”

The catalyst was a cryptocurrency market rally driven by optimism following the U.S. elections.

High-risk loans are those secured by volatile assets within 5% of the liquidation threshold. Traders use them to profit from potential price swings.

High-risk DeFi loans are surging as market sentiment drives demand for leverage.

However, with the U.S. elections just concluded, heightened volatility remains a concern. Large events like this can create a lot of volatility, potentially putting pressure on leveraged positions. pic.twitter.com/KIrOwRRrMr

— IntoTheBlock (@intotheblock) November 7, 2024

Co-founder of Evaa Protocol, Alexander Sudeykin, told Cointelegraph that mass liquidation of high-risk loans could impact the broader cryptocurrency market.

“However, I do not think the impact of the worst-case scenario could be that significant. Over the years, DeFi has matured significantly, especially among major protocols that have implemented more advanced risk management practices. Increased resilience can mitigate the effects of any sharp downturns,” the expert noted.

Sudeykin cited the example of his developed protocol, which introduced limits on the maximum volume of assets, created isolated pools, and implemented several other measures. 

In November, Coinbase launched a “wrapped” Bitcoin on the Solana network — cbBTC.

In September, the exchange introduced its own version of digital gold in the form of an ERC-20 standard token.