Summary Review: Since the recent US election, high-risk DeFi loans have seen a sharp increase, reflecting the market’s growing risk appetite. While high-risk decentralized finance (DeFi) loans can impact the broader market, experts believe strong risk management across major DeFi protocols will limit potential fallout.
Following the United States presidential election, there has been a notable rise in “high-risk” DeFi loans as investors flock to capitalize on increased market optimism. According to data from IntoTheBlock on Nov. 6, these loans — secured by volatile assets close to their liquidation points — have surged, creating both opportunities and potential warnings for the cryptocurrency market.
High-risk DeFi loans are backed by assets within 5% of their liquidation threshold, meaning they are particularly vulnerable to market fluctuations. Investors often use these loans to benefit from expected price swings, but they come with added risk due to the over-collateralized nature of decentralized lending and the unpredictable value of the collateral assets.
The potential impact of mass liquidations in DeFi on the crypto market has raised concerns, but Alexander Sudeykin, co-founder of the Evaa Protocol, believes the effects may be limited. According to Sudeykin, DeFi has seen substantial growth in its risk management over recent years, especially among major platforms that now prioritize stronger safeguards.
The risks of high-risk loans were highlighted in June when Curve Finance founder Michael Egorov faced over $100 million in loan liquidations. The sell-offs were partly triggered by a hack attempt that caused Curve’s CRV token to drop by 28%.
Despite their high accessibility compared to traditional loans, decentralized loans remain high-risk due to the inherent volatility of cryptocurrency assets.
Summary Review: Since the recent US election, high-risk DeFi loans have seen a sharp increase, reflecting the market’s growing risk appetite. While high-risk decentralized finance (DeFi) loans can impact the broader market, experts believe strong risk management across major DeFi protocols will limit potential fallout.
Disclaimer: Nothing in this article, or any content from Web30 News, should be interpreted as financial advice. The information provided is for entertainment and educational purposes only. Investing in cryptocurrency involves risks, and investors should be aware that capital is at risk and returns are never guaranteed. Please conduct thorough research and consult with a qualified financial advisor before making any investment decision.
