February Liquidations: Ether Lending Markets Hit $500 Million in Collateral Loss

February Liquidations Show DeFi Resilience Amid $500 Million Loss in Collateral

February Liquidations – February witnessed a major surge in liquidations across ether lending markets, with nearly half a billion dollars in collateral being liquidated, marking the second-highest monthly liquidation figure in DeFi history. This event follows the May 2021 crash, where liquidations peaked at a staggering $670 billion. The timing of these liquidations aligns with a broader downturn in the crypto market, contributing to a cascade of forced position closures.

Impact on Major Lending Platforms: Aave and Compound

A significant portion of the February liquidations took place on Aave and Compound, two of the largest decentralized lending platforms. These platforms allow third-party liquidators to pay off underwater loans and receive collateral at a discount, typically between 5% and 15%, depending on the asset. The liquidation mechanisms provide an incentive for efficient market correction, but they also highlight the risks borrowers face in a volatile market.

The composition of collateral on Aave offers insight into the assets most affected by this downturn. Aave currently holds a substantial amount of ether (2.06 million ETH), worth approximately $5.09 billion, alongside USDT (3.56 billion USDT), wrapped tokens like wstETH and WBTC, and USDC (3 billion). With a significant portion of these assets used to secure loans, the sharp decline in market values led many positions to exceed their liquidation thresholds.

Lending Platforms Show Resilience Amid Stress

Despite the large-scale liquidations, both Aave and Compound have demonstrated operational resilience. The automated liquidation processes functioned as designed, without systemic failure, proving that DeFi infrastructure can withstand large deleveraging events. However, the February event serves as a reminder for borrowers to maintain healthy collateralization ratios to weather market downturns effectively.

Bybit Sees Record Liquidations

As BTC and ETH prices dropped by over 18% and 26%, respectively, Bybit experienced its largest-ever liquidation event, with $1.4 billion in long liquidations recorded in one week. The most significant single-day liquidation occurred on February 25, 2025, amounting to $383 million. Notably, Bybit’s transparency in reporting liquidation data sets it apart from other centralized exchanges, where liquidation figures are often underreported due to API limitations.

Meanwhile, open interest (OI) on BTC futures on both Bybit and CME saw significant declines, dropping 35% and 23%, respectively. ETH futures also experienced a 41% drop in open interest on Bybit during the same period, reflecting the broader impact of the market’s volatility.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.