ETH Price Plunge Sparks $100M Liquidation in DeFi Ecosystem

ETH’s Price Plunge Triggers $100M Liquidation in DeFi

In a stunning blow to the decentralized finance (DeFi) ecosystem, the price of Ethereum (ETH) plummeted by more than 14% on April 6, igniting a wave of liquidations across major lending platforms. Among the most significant casualties was a single investor, or “whale,” who saw over $100 million in Ether vanish from their position on the DeFi lending protocol known as Sky.

The event unfolded rapidly as ETH—the native token of the Ethereum blockchain—tumbled to $1,547. This sharp downturn marked a drop of 14.5% within 24 hours, a level not seen since October 2023, when the market was still reeling from the long-lasting effects of the FTX exchange collapse. According to CoinGlass, this volatile episode resulted in nearly 320,000 traders being liquidated within a single day, wiping away close to $1 billion. Notably, Ethereum positions dominated the bulk of these forced liquidations in the final hours of the day.

How DeFi Lending Protocols Amplify Price Swings

The Sky protocol—formerly known as Maker before rebranding in August—is a cornerstone of many users’ DeFi strategies, allowing them to create collateralized debt positions (CDPs). In essence, participants deposit a cryptocurrency, typically ETH, as collateral in order to borrow DAI, Sky’s dollar-pegged stablecoin. This system operates on the principle of overcollateralization, meaning users must pledge at least $150 of ETH to borrow 100 DAI, reflecting a typical collateral ratio of 150%.

However, as with many algorithmically managed systems, the machines don’t flinch during market turmoil. When the value of ETH drops and drags the collateralization ratio below the threshold, the protocol marks the position for liquidation. This automated safeguard ensures that the system’s loans remain solvent, even in the face of plummeting collateral values.

A Whale Goes Under: $106M in ETH Liquidated

For one major investor, the sudden ETH drop proved catastrophic. According to data from DeFi Explore and analytics firm Lookonchain, the whale’s vault—holding 67,570 ETH valued at approximately $106 million—was liquidated after the collateral ratio slipped to just 144%. With the required threshold at 150%, this drop rendered the position undercollateralized, triggering an automatic liquidation.

During liquidation, Sky’s protocol seizes the ETH collateral and swiftly auctions it off to recover the borrowed DAI and any associated fees. Any leftover collateral—if it exists after debt repayment—gets returned to the user. But in this case, the sheer scale of the position and speed of the price collapse meant that a massive chunk of wealth was swept away in moments.

This wasn’t an isolated event. Another large investor had supplied 56,995 wrapped ETH, worth around $91 million, as collateral to borrow DAI. According to a report from Spot On Chain, this second whale teetered on the brink of liquidation as prices spiraled lower.

Wider Implications for the Crypto Market

The broader picture reveals a fragile market reacting not only to internal dynamics but also external macroeconomic pressures. Analysts point to the broader crypto market meltdown as being, in part, a consequence of U.S. President Donald Trump’s recent tariff-driven market shake-up, which sent ripples through financial sectors globally—including digital assets.

Ethereum, in particular, has struggled to regain footing since its glory days in 2021, remaining down 68% from its all-time high. Each subsequent market shock chips away at investor sentiment, pushing the asset further back into bear territory. If such downturns continue, more DeFi users may face similar fates unless they can shorе up their positions with fresh collateral or wind them down proactively.

What these liquidations underscore is the razor-thin margin for error in algorithmic finance. While DeFi platforms like Sky operate with rigid mathematical precision, that very lack of emotional or strategic nuance can leave even the wealthiest investors vulnerable when market tides turn fast. In environments driven by volatility, automation is both a safety net and a trapdoor, ready to recalculate positions into oblivion the moment thresholds breach.

As the dust settles, this latest crash acts as a sobering reminder that in DeFi—especially with high-leverage positions—fortunes can evaporate in a heartbeat.