Ethereum (ETH) has demonstrated its resilience by easily bouncing back above $3,000 after recent corrections. However, the token now finds itself in a precarious position, as it is only a few hundred dollars away from several levels of ETH liquidation.
As of Tuesday, ETH was trading around $3,070.30, remaining within its narrow range. Despite the low trading volume of around $13 million in 24 hours, ETH has managed to stay within its usual tight range. However, liquidations are still occurring on various protocols and centralized exchanges, despite the implementation of precautions and automated mechanisms.
While decentralized protocols currently have adequate support at many key price levels, there are certain clusters that could be vulnerable to relatively small corrections.
Over the past month, Ethereum has fluctuated between $2,900 and $3,300, sometimes experiencing significant short-term volatility.
One immediate and significant liquidation cluster is currently close to the current price levels on the Aave protocol. Other vaults and DeFi services are also holding collaterals at much lower ETH levels that have accumulated over the years. In particular, around 17,167 ETH are at risk of liquidation if prices drop below the collateral level of $2,880.20. Maker DAO is also exposed to ETH risk through its vaults, with a series of liquidation levels below $2,700. One wallet holding 9,232.50 ETH is at risk of liquidation at $2,714.92. Wallets and vaults at risk often resort to DeFi Saver to try to prevent liquidations. DeFi Saver offers multiple vault controls through its Safe app, which helps monitor and automate DeFi risk exposure.
ETH has shown its ability to quickly fall to a lower range within a few days, resulting in hundreds of millions of dollars in liquidations. One recent example of this was the liquidation of Lido DAO addresses at the $3,080 range.
In the centralized trading space, ETH liquidations have remained relatively low, with mostly short positions being liquidated in the past day.
The past week has been quite stressful for traders, highlighting the added complexity of risk management tools.
One of the early risks associated with DeFi was the possibility of significant liquidations that caused many traders to lose their collaterals. However, the Ethereum ecosystem is now better protected by Liquid Staking Tokens (LRT), which often deviate from the price of ETH on exchanges and help prevent liquidations. The recent market events have also been less severe compared to previous instances where over $1 billion in liquidations occurred daily.
The Ethereum decentralized ecosystem is experiencing a resurgence in 2024, with various projects representing over $54 billion in notional value and generating $2.78 million in fees each day. Additionally, nearly $25 million in value is entering Ethereum DeFi daily.
ETH traders are showing a preference for long positions. While short liquidations on Binance have decreased in the past few days, open interest on ETHUSDT perpetual futures has been growing. In just one day, open interest has reached $2.1 billion in notional value. Long positions account for over 77.93% of all open interest, and market takers are predominantly buying ETH.
Furthermore, the decrease in ETH reserves on exchanges indicates a growing interest in withdrawals and buying. Over the past 6-8 weeks, ETH reserves have been gradually declining and are now below $13 billion in value. The peak selling occurred above $4,000, and since then, there have been signs of accumulation.
Ethereum is still widely used for re-staking. The Eigen protocol has seen its holdings surpass $15 billion in total value locked. Physical ETH tokens are still necessary for staking, as well as for vaults and collateral wallets.
However, it is possible that this trend may reverse, as some large investors may still choose to sell a portion of their ETH holdings. Recently, wallet watchers observed one of the older pre-mined addresses moving ETH for the first time in nearly nine years.
