DeFi

DeFi Liquidation: What It Is and How to Avoid It

Published

9 months ago

17 May, 2024

In the context of decentralized finance (DeFi), liquidation occurs when the value of a borrower’s collateral falls below the agreed upon threshold. DeFi borrowing typically sees borrowers provide collateral between 1.5 and 3 times the amount borrowed, with the loan typically delivered to the borrower in the form of stablecoins such as USDC, Dai, USDT or others.

However, the collateral provided by borrowers usually comes in the form of crypto tokens like Bitcoin, Ethereum, Polygon and others. Since these assets tend to be very volatile, there is always a risk that their value will fall below the amount required as collateral, even if they were equivalent when the loan was first taken out.

Top DeFi lending platforms like CreatorDAOCompound and Aave differ in their approach to liquidation, with some liquidating a user’s entire collateral and others liquidating only a portion.

Let’s take a look at some of the steps DeFi users can take to avoid the threat of having their collateral liquidated and their loan withdrawn.

Self-liquidation

A simple and straightforward way to avoid being forcibly liquidated by a given lending platform is to simply repay all or part of the loan yourself using funds from the sale of your collateral.

While this scenario is not ideal, it may be the only way to avoid being liquidated for some users and, at the very least, gives the individual control over how they close their loan.

Increase the warranty

DeFi borrowing is based on a concept called loan-to-value (LTV), which measures the amount of collateral provided relative to the value of the loan taken. Current LTVs in the DeFi Loans In the space, borrowers get loans between 50 and 75 percent of the value of the collateral they provide.

If the value of the collateral falls below the agreed ratio, the user is exposed to the risk of liquidation.

Therefore, if the threat of liquidation looms, DeFi users can simply increase the value of their collateral by depositing more cryptocurrency tokens. This will prevent liquidation in the short term, but may not be a viable long-term solution if the value of the collateralized assets continues to decline.

Constantly monitor your LTV ratio

Liquidation can be avoided by exercising vigilance over the status of the LTV ratio of a given loan. There are a host of useful tools and services that send real-time health updates and alerts to a borrower, informing them of the status of their loan. Of course, unless you stay awake 24 hours a day, you might miss the updates and get wiped out anyway.

However, monitoring the LTV of your loan when you can is crucial given the volatility of collateralized assets, and is a simple best practice technique that can minimize the threat of liquidation.

Exercise risk management

The primary use case for most DeFi loans is to fund trading accounts. Therefore, the way an individual approaches their transactions can have a major effect on their loan status. If they lose all their negotiated money, there is a good chance their collateral will be liquidated.

Traders should exercise good risk management by setting stop-losses, diversifying their portfolio and trade direction, using pair trading to mitigate risk, maintaining a trading journal and taking any other measure to ensure that they do not take unnecessary risks. their funds.

Compare the prices

The threat of liquidation can be significantly reduced simply by choosing a loan product with a fairer LTV ratio – one that you won’t struggle to repay even in a market downturn.

While the margins between different LTV ratios on major DeFi platforms like CompoundAave and MakerDAO are slim, there are still options for potential DeFi borrowers.

For example, by applying a lease formula to the DeFi lending process, the Nolus The platform allows you to take out loans with a small deposit, rather than putting up 1.5 times the loan amount as collateral.

Additionally, unlike other DeFi lending platforms, Nolus does not liquidate the entire loan in the event of a payment default or a drop in the LTV ratio. Instead, the platform simply removes the next scheduled loan payment from the collateral until the loan is repaid.

Since Nolus allows up to 3x leverage on its loans, users who otherwise would not have the funds to secure a loan can access substantial DeFi loans without risking significant funds.

Conclusion

There is no way out: liquidation in DeFi is an ever-present risk. That being said, this can be avoided by applying some basic safety principles and doing some research first to find the best loan terms that fit your situation.

Fuente

DeFi

If You Missed BONK and PEPE This Year, This Viral New Crypto Might Be Your Salvation

Published

6 months ago

29 July, 2024

CoinFlix Staff

If You Missed BONK and PEPE This Year, This Viral New Crypto Might Be Your Salvation

Bonk and Pepe appear set to net new investors 10x to 100x returns over the next 12 months. However, cryptocurrencies in the DeFi play-to-earn gaming sector could offer even greater returns. As August approaches, Rollblock is emerging as a standout DeFi play-to-earn gem with the potential to 100x-1000x gains in the fourth quarter and beyond.

The project features an innovative revenue sharing model and exceptional accessibility, attracting players and investors. Additionally, Rollblock’s extensive game library of over 150 titles and enhanced sports betting are further driving excitement for the platform. Cryptocurrency analysts are expecting a sudden surge in demand. 800% a push for Rollblock from the beginning of September.

Bonk remains strong despite market fluctuations

While most well-known cryptocurrencies struggled throughout July, Bonk remained strong. As one of the highest-grossing meme cryptocurrencies of 2024, Bonk rose over 24% in July, while most cryptocurrencies experienced negative fluctuations.

Investors looking to add a relatively safe memecoin to their portfolio should consider Bonk. While Bonk is unlikely to generate explosive gains of 250x to 1,000x from here on out, Bonk could still theoretically provide returns in the 20x to 100x range.

Pepe should see a big rise in the next bull run

Alongside Bonk, Pepe has yet to go through a bull run. This means that there are still substantial gains to be made from Pepe over the next 12 months.

Pepe is down 4% in 30 days, but that shouldn’t worry Pepe investors in 2024. Experts believe Pepe’s best days are still ahead, with crypto analysts predicting a 10x to 50x surge in the next election cycle around November.

In the long term, Pepe could surpass the 100x mark for today’s investors. However, Pepe is a memecoin, and one should exercise caution when investing in purely speculative assets that have no utility.

Rollblock’s Unprecedented Hype Potential Could Push It Past 100x Valuation in Q4

Rollblock is a GambleFi Play-to-Earn token that integrates centralized and decentralized gambling on a single platform. By allowing players to earn rewards through active participation and gameplay, the platform creates a compelling incentive structure that appeals to both casual and competitive players.

With its cutting-edge blockchain technology, Rollblock offers top-notch security that keeps bets and transactions on the platform secure. The platform’s lack of KYC mandates appeals to both users who value anonymity and security.

Rollblock’s revenue sharing model, which allocates up to 30% of casino revenue to RBLK token holders, is a major draw for investors. The model involves burning half of the repurchased tokens and distributing the other half to stakers, increasing the token’s value and encouraging long-term investment.

The platform is also constantly evolving thanks to user feedback which has enabled updates such as the upcoming sports betting feature within the platform’s casino. This addition will complement Rollblock’s extensive game library of over 150 titles, ranging from traditional poker to innovative blockchain-based games.

RBLK is expected to emerge as one of the leading DeFi tokens in 2024. With a price of $0.0172 with impressive growth potential and over 140 million tokens sold recently, Rollblock is on track to enter the top 100 cryptocurrencies by Q4, making today a lucrative time to buy RBLK tokens.

Discover the exciting opportunities of the Rollblock (RBLK) presale today!

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Fuente

DeFi

Cryptocurrency sector is experiencing ‘most misjudged moment’ since 2020, says venture capitalist Arthur Cheong

Published

6 months ago

29 July, 2024

CoinFlix Staff

Cryptocurrency sector is experiencing ‘most misjudged moment’ since 2020, says venture capitalist Arthur Cheong

Veteran cryptocurrency investor Arthur Cheong believes the digital asset sector offers long-term holders a golden opportunity.

Cheong, the founder of DeFiance Capital, tell His 171,700 followers on social media platform X indicate that he believes decentralized finance (DeFi) is hugely undervalued.

According to Cheong, DeFi projects are innovating at a rapid pace and leaving traditional financial (TradFi) companies in the dust.

“It’s been a long time since I’ve been this excited about the risk/reward and potential upside of DeFi. This is probably the most misjudged moment since the pre-DeFi summer of 2020, with extremely promising prospects.

I see opportunities not only in OG (original) DeFi, but also in some newer projects that are evolving rapidly and growing at a pace that fintech startups will do anything to match.

The veteran investor also believes that crypto is now here to stay following recent launch from the Ethereum spot market (ETH) exchange-traded funds (ETFs) last week.

“Overall, the floodgates are open and there is no turning back. TradFi asset managers will continue to launch new crypto products because, guess what: there is huge demand for them!”

I expect them to launch actively managed crypto ETFs [in the] coming years. ”

Earlier this month, Cheong laid that it might be a bad strategy for cryptocurrencies to seek mass adoption, believing that digital assets are designed to disrupt several key financial sectors.

“I think we should accept that cryptocurrencies may not be suited for mass adoption like Web2, but rather are optimized for some narrow but very high-impact use cases like stateless global money, cross-border payments, and decentralized finance.

Chasing mass adoption of normies may be chasing the wrong Grail from the start.

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Disclaimer: Opinions expressed on The Daily Hodl are not investment advice. Investors should do their own due diligence before making any high-risk investments in Bitcoin, cryptocurrencies or digital assets. Please be advised that your transfers and trades are at your own risk, and any losses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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