#What Happened in February with Ether Lending Markets?
In February, ether lending markets experienced an unprecedented liquidation event, marking the most significant occurrence in the last year. Nearly half a billion dollars in collateral was liquidated during this period. This impressive figure ranks as the second highest in DeFi history, falling short only of the catastrophic May 2021 market crash when liquidations soared to $670 billion.
The surge in liquidations directly correlated with a notable decline in the broader cryptocurrency market. As the total market capitalization for cryptocurrencies dropped substantially, many positions were forced to close, resulting in a cascade of liquidation events.
#Which Lending Platforms Were Most Affected?
A considerable portion of these liquidations took place on two of the largest lending platforms, Aave and Compound. These platforms processed the lion's share of February's liquidation volume. Their liquidation mechanism empowers third-party liquidators to repay portions of loans that are underwater. In return, the liquidators obtain the borrower's collateral at a discounted rate, typically ranging from 5% to 15%. This system helps correct market inefficiencies by providing financial incentives for liquidators.
Analyzing the collateral composition on Aave offers insights into the assets involved. The platform showcases a substantial supply of ether, amounting to over 2 million ETH, alongside a significant quantity of USDT and various wrapped tokens. These assets act as the primary security for borrowed funds, and when market values sharply declined, numerous positions crossed their liquidation thresholds.
#What Does This Mean for Borrowers?
Despite the crowded landscape of automated liquidation processes, February's events emphasize how swiftly market conditions can alter. For borrowers, this situation highlights the urgent need to maintain healthy collateralization ratios. Being adequately buffered can help withstand sudden market downturns, which can happen anytime.
While the significant liquidation volume raised concerns, the response from the major lending platforms showcased their operational resilience. They functioned as designed and successfully managed a large-scale deleveraging event without leading to systemic failures. This reflects a vital maturation stage for DeFi infrastructure, proving these protocols can sustain pressures without collapsing.
It's essential to note that the liquidation figures reported are based on publicly available data. Therefore, they might not fully represent the extent of market activity, commonly underreported due to API constraints.
#What Was the Impact on Bybit?
Amid falling prices of BTC and ETH, Bybit recorded an all-time high in long liquidations, reaching over $1.4 billion in a single week. The peak occurred on February 25, 2025, with liquidations surpassing $383 million in one day. These numbers represent Bybit's largest weekly and single-day liquidation figures.
Interestingly, Bybit's heightened liquidation statistics stem from their commitment to full data transparency. They are currently the only centralized exchange sharing complete liquidation data publicly. This disclosure contrasts with other notable exchanges, where liquidation figures are often underreported due to rate limitations.
Following Bybit's announcement to provide real liquidation figures, the drastic decline in BTC prices showcased the consequences. In comparison, other central exchanges, such as Binance and OKX, reported relatively moderate long liquidation numbers, staying consistent with their averages during the same period.
Additionally, last week saw a significant drop in open interest for bitcoin and ether futures on Bybit and CME. Open interest dropped over 35% for BTC futures on Bybit, illustrating the rapid changes occurring in the market recently.