After making two attempts to leverage their long position on Ethreum ($ETH), the second-largest cryptocurrency by market capitalization, a huge cryptocurrency whale lost over $4.5 million. This was because they had to settle their debt on a decentralized protocol as the price fell.
The whale initially lost about $500,000 after taking out a USDT loan on the decentralized lending platform Compound. They subsequently had to refund the money they had used to buy more ETH, according to on-chain analysis firm Lookonchain.
The trader then tried again, taking money off of the top cryptocurrency exchange Binance and depositing it onto the protocol. They then borrowed USDT and used that money to buy more ETH, so increasing the leverage of their cryptocurrency holdings.
The whale’s objective was to sell all 10,701 ETH, which was worth about $33 million at the time, on the Binance exchange in order to pay off the debt from their losing long position. Over $4 million more was lost as a result of this last decision.
This whale sold all 10,701 $ETH($33M) on #Binance to repay debt 2 hours ago, losing more than $4M again!
He went long $ETH by depositing $ETH on #Compound and borrowing $USDT to buy more $ETH.
This is his second time losing money by going long $ETH.
Last time he lost ~$500K. pic.twitter.com/rVM3xB3GmR
— Lookonchain (@lookonchain) April 16, 2024
Loans on Compound are over-collateralized, meaning borrowers must provide collateral with a value greater than the loan amount in order to obtain a loan. However, there are a number of dangers associated with the cryptocurrency market, including the possibility that loans may become undercollateralized due to price volatility. This can lead to a liquidation.
almost the last week, the price of Ethereum fell by almost 14% as part of a broader market decline that also witnessed a decline in the value of stocks following an explosion in Middle East tensions sparked by Iran’s drone and missile attacks against Israel, which Israel responded by threatening to retaliate.
As of this writing, Ethereum is trading at $3,000 per token, down from a peak of over $4,000 observed last month, but still up more than 44% year over year.
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Disclaimer: Please note that the viewpoints and perspectives expressed by the author, as well as any individuals referenced in this article, are intended solely for informational purposes. They should not be construed as financial or investment advice. It’s important to acknowledge that investing in or trading cryptoassets carries inherent financial risks.