After making two attempts to leverage their long position on Ethereum ($ETH), the second-largest cryptocurrency by market capitalization, a huge cryptocurrency whale lost over $4.5 million. This was because they had to settle their debt on a decentralized protocol as the price fell.
The whale initially lost about $500,000 after taking out a USDT loan on the decentralized lending platform Compound. They subsequently had to refund the money they had used to buy more ETH, according to on-chain analysis firm Lookonchain.
The trader then tried again, taking money off of the top cryptocurrency exchange Binance and depositing it onto the protocol. They then borrowed USDT and used that money to buy more ETH, so increasing the leverage of their cryptocurrency holdings.
The whale's objective was to sell all 10,701 ETH, which was worth about $33 million at the time, on the Binance exchange in order to pay off the debt from their losing long position. An extra loss of more than $4 million came from this last decision.
Loans on Compound are over-collateralized, meaning borrowers must provide collateral with a value greater than the loan amount in order to obtain a loan. However, there are a number of dangers associated with the cryptocurrency market, including the possibility that loans may become undercollateralized due to price volatility. This can lead to a liquidation.
April 2024, Cryptoniteuae