Jiang Zhuoer: Sun Yuchen 600,000 ETH if liquidated ETH price will really fall below $1000?

The liquidation of the DeFi lending platform will not immediately sell in the market and will have limited impact on the market.

Jiang Zhuoer: Sun Yuchen 600,000 ETH if liquidated ETH price will really fall below 00?

During yesterday’s market crash, the DeFi lending platform was liquidated for hundreds of millions of dollars. Wavefield founder Sun Yuchen said that avoiding a liquidation of 600,000 ETH on Liquity “saved the cryptocurrency community. Some in the community speculated that if the 600,000 ETH had been liquidated, the ETH price could have fallen below $1,000. In response, Leybitt Mining Pool CEO Zhuoer Jiang posted that the liquidation of the DeFi lending platform will not be sold in the market immediately and will have limited impact on the market.

The following is the text of the article.

Written by Zhuoer Jiang, CEO of Liquity Mining Pools

Will Suncut’s 600,000 ETH at Liquity get smashed to below 1000 if it is liquidated?

It’s not really like that, it’s not that scary. Telling stories is one way to tell them, the more sensational they are, the more listeners there are, telling principles is another way to tell them.

1, DeFi’s strong liquidation, and the centralized exchange burst similar, but different, the exchange is a one-time burst single body to a lower price to hang out, and because: lower pending orders = down to smash the plate = the latest transaction price reduced, so it may lead to the following single also burst, forming a chain of burst.

2, DeFi’s collateralized lending after the collateralization rate falls below a certain level, it will be listed out, allowing the mover to participate in liquidation, the process is similar to a blowout. For example, if you borrow $100 U and the net value of the collateral ETH is $110, you can liquidate the order, exchange the $100 U for $110 worth of ETH, and then sell the $110 ETH to the exchange for a $10 liquidation profit. (Liquity uses 3 methods of liquidation such as stable pools, the principles are similar, so I won’t go into them)

  1. But DeFi’s latest coin price is not generated by direct trading of buy and sell orders like the exchange, but by external input from the prophecy machine. Therefore, the exchange’s clearing order will directly beat down the transaction coin price instantly, while DeFi’s clearing order will also reduce the transaction coin price, but this process relies on the clearer arbitrage to complete, there is a certain delay time, and is an indirect role.
  2. In the extreme case, if the market moves brick liquidators are depleted of funds, then no matter how big the liquidation order is, it is just in the system and will not transmit the impact to other DeFi and centralized exchanges. This is the case with Suncut’s 600,000 ETH.

5、When Liquity’s stable pool runs out of LUSD stable coins (can’t rely on the system pre-stored stable coins to clear, to rely on external brick-moving liquidators), the whole system collateral rate below 150%, it will open the ultimate mode – Recovery mode (recovery mode), all the single, even if higher than 110%, from low to high, will be liquidated, until the whole system collateral rate back to 150% to stop, thus forcing borrowers to make up the money as soon as possible.

  1. Recovery mode is what Sun cut said, “I am at the end of the queue, and 40,000 eths have been shot in front of me”. But even if Sun cut does nothing, after the system kills the low collateral rate single in front of it, it is likely that the whole system collateral rate will recover 150% and exit from the queue shooting mode.
  2. Even if the coin price falls further, the system collateral rate can’t recover 150% and can’t exit from the queue shooting mode, when the 600,000 ETH of SunCut is hung in the liquidation order, the money of the brick liquidator is not enough, even the liquidation order (corpse) in front of SunCut is not finished yet, so it’s not SunCut’s 600,000 ETH for the time being.

Even if you finish the liquidation order (corpse) in front of Sun Cut, you have to eat the 600,000 ETH slowly one by one, and the impact on the exchange price depends on the funds of the brick clearer, which is obviously not enough at this time.

And, after the price of the coin rises again, unlike the exchange bursting single corpses that do not revert to normal orders, most DeFi will restore the outstanding liquidation orders to normal orders. For example, Liquity will exit from the queue shot mode after the entire system collateral rate is restored to 150%.

  1. So to summarize, what will happen if Suncut does not cover the position in time? The probability is that nothing will happen because.

The lowest coin price is maintained for a few minutes, and when the coin price rises after a few minutes, the brick liquidator can’t even finish eating the corpse in front of Sun Cut.

Even after eating the corpse in front of Sun Cut, the pressure on the exchange will only depend on the brick liquidators’ funds, which are obviously not enough at this time and are affected by the ETH congestion, so the brick moving efficiency is very low.

After clearing the low collateralization rate sheets in front of Suncut, the Liquity system collateralization rate could rise back to 150% and exit from the queue shot mode

Therefore, there is a high probability that nothing will happen that will cause “ETH to fall to 1000”. Only a few conditions come together: the coin price is low for a long time (but not too low, resulting in unprofitable liquidation) + abundant funds for bricklayers + no ETH blockage, which may lead to bricklayers to move the 600,000 ETH to the exchange continuously, affecting the exchange price.

  1. The biggest risk for Suncut is that some giant whale will set eyes on him and liquidate all of Liquity’s orders (including Suncut at the end of the queue) with a large amount of U when Liquity enters the queue shooting mode and the total collateral rate is seriously lower than 150%, then Suncut will be bought 600,000 ETH at a low price.

However, if the giant whale eats 600,000 ETH at once, the probability is that it is a pure buy, because if it gets the exchange arbitrage smash, the 10%-20% price difference is not enough to smash, and it will smash itself into a loss, so it will not lead to “ETH falling to 1000”.

PS: I don’t know if the 600,000 ETH is Sun’s, or Sun’s users, remember: No your key, No your ETH [laughs but doesn’t speak].

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/jiang-zhuoer-sun-yuchen-600000-eth-if-liquidated-eth-price-will-really-fall-below-1000/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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