The Ethereum lending market experienced its most significant liquidation event in over a year, with nearly $500 million in ETH collateral wiped out in February. This marks the second-highest liquidation event in DeFi history, trailing only the May 2021 market crash, which saw $670 million liquidated.
The mass liquidations were triggered by a broader market downturn, which saw total crypto market capitalization decline sharply. This drop forced traders with overleveraged positions to liquidate, creating a cascading effect that led to one of the largest deleveraging events in decentralized finance (DeFi) to date.
The largest portion of the liquidations was processed on Aave and Compound, two of the most prominent Ethereum-based lending platforms. These protocols facilitate lending and borrowing through collateralized loans, meaning that when collateral values drop too low, the platform automatically liquidates positions to cover losses.
The liquidation mechanism on these DeFi platforms allows third-party liquidators to repay portions of defaulting loans and receive discounted collateral, typically ranging between 5% and 15%, depending on the asset. While this process ensures market efficiency, it also highlights the risks of overleveraging in highly volatile conditions.
DeFi Infrastructure Proves Resilient
Despite the unprecedented liquidation volume, DeFi lending protocols remained stable and functioned as designed, marking an important maturation point for the sector. The automated liquidation systems on platforms like Aave and Compound effectively absorbed the shock, liquidating at-risk positions without triggering a systemic failure.
This resilience reinforces the strength of DeFi’s risk management mechanisms, which ensure that undercollateralized loans are liquidated in an orderly fashion. Unlike traditional financial markets, where liquidity crises can cause centralized institutions to collapse, DeFi platforms rely on transparent smart contract execution, allowing large-scale deleveraging events to occur without disrupting overall market operations. This operational stability signifies a maturation of DeFi infrastructure, showcasing its ability to handle large-scale deleveraging events without incurring systemic risk.
Bybit Sees Record $1.4 Billion in Liquidations as BTC and ETH Plummet
The recent crypto market downturn led to Bybit’s largest-ever liquidation event, with over $1.4 billion in long positions wiped out in a single week. This unprecedented level of liquidations coincided with Bitcoin (BTC) and Ethereum (ETH) dropping over 18% and 26%, respectively, at their lowest points.
The most dramatic single-day liquidation on Bybit occurred on February 25, 2025, when $383 million in long positions were forcibly closed. This marked the exchange’s biggest single-day liquidation event in history, further demonstrating the brutal impact of high leverage trading during market volatility.
Bybit’s liquidation data paints a starker picture than that of other major centralized exchanges (CEXs), primarily because Bybit is one of the few exchanges that fully discloses its liquidation figures. Many other CEXs underreport their liquidation data, largely due to API rate limitations that fail to capture the full extent of liquidated positions.
Quick Facts
- Nearly $500 million in ETH collateral was liquidated, marking the largest Ethereum liquidation event in over a year.
- This was the second-largest liquidation event in DeFi history, trailing only the May 2021 crash, which saw $670 million in liquidations.
- Aave and Compound handled the majority of liquidations, relying on their automated liquidation mechanisms to stabilize lending markets.
