The sharp drop in the price of Ethereum (ETH) has led to significant fluctuations in the decentralized finance (DeFi) ecosystem. Dropping by approximately 10% on Monday and currently sitting at $1,886 at 8:45 AM (Turkey time) today, ETH has decreased the value of assets used as collateral in DeFi protocols, triggering potential liquidations. This situation has increased risks, particularly in major lending platforms like Sky (formerly known as Maker). FACING LARGE DEFI CREDIT LIQUIDATION RISKS A DeFi loan based on $130 million worth of ETH collateral on the Sky platform faced the danger of liquidation, even though the borrower committed to an additional 2,000 ETH as collateral. According to the Sky Vault dashboard, the relevant borrower used a total of 65,680 ETH as collateral early today to borrow $74 million via the DAI stablecoin. With the drop in ETH prices, the liquidation level for this loan has come slightly above the $1,900 mark. Monday’s decline in the ETH price to $1,820 increased the risk of liquidation for the loan. Data from the blockchain analysis platform Debank shows that the borrower deposited around 2,000 ETH worth $4 million from the Bitfinex exchange to the Sky platform on Monday morning. While this move reduced the liquidation level to $1,875, the current market price still puts pressure on the loan as it remains below this level. WIDESPREAD LIQUIDATIONS EXPECTED IN DEFI ECOSYSTEM The drop in ETH prices not only affects the significant loan on Sky but also has negative implications for the overall DeFi market. According to DefiLlama data, there is a $13.6 million loan at a $1,857 liquidation level and another $117 million loan to be liquidated at $1,780. Additionally, it is estimated that if the ETH price drops by another 20%, the liquidated debt amount could reach $366 million. Liquidations in DeFi might create additional selling pressure due to the sale of assets used as collateral for the liquidated loans, potentially leading to a further decline in ETH price. With ETH losing critical support levels, the crypto markets have raised the possibility of more significant fluctuations in the DeFi ecosystem. Specifically, in the event of erosion in collateral levels for DeFi loans, chain reactions of liquidations may occur. Investors are closely monitoring ETH price movements to mitigate potential risks.