The Bitcoin Drop To $91,500 Triggered a Major DeFi Flushout

The Bitcoin price drop to $91,500 triggered mass crypto liquidations across exchanges and top DeFi protocols like Aave and Compound – let’s late a look.

After peaking at around $106,000 on Friday, Bitcoin

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dropped throughout the NY session of that day before extending losses over the weekend. With claims of possible market manipulation by leading market makers, Bitcoin fell some more on Monday, dropping to as low as $91,500.

However, the unexpected plunge in the earlier hours of February 3 was contained as prices recovered steadily, breaking $101,000 before recoiling to spot rates. Amid this wavy price action, billions of leveraged long positions were liquidated on Binance, OKX, and Bybit.

It is now emerging that leveraged longs and 100X speculators were not the only culprits. According to Santiment, the fallout extended beyond trading to lending, where Aave, Compound, and other DeFi protocols had to sell collateral to protect lenders. Their decision shook DeFi to the core, sparking a sell-off in top pro-DeFi platforms like Aave, Injective, and even Compound.

The Bitcoin Price Crash Saw More Than $2.2Bn Vanquished in Mass Liquidation Event

From the BTCUSDT chart, the drop from January 31 to February 3 saw BTC lose 10%, pushing losses from all-time highs to around 16%. Although prices are stable at the time of writing, the coin remains below $100,000.

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Over the last three days, the see-sawing, range-bound market has led to liquidations in the perpetual futures markets.

According to Coinglass, over $481 million worth of leveraged positions have been closed in the last 24 hours. Most of these were leveraged longs, betting on Bitcoin and Ethereum to rally.

(Source)

As of February 3, this figure stood at over $2.2 billion, meaning many speculators have been flushed out, erasing excess leverage.

The same liquidation was extended to DeFi lending protocols like Aave and Compound. On these platforms, users can borrow loans, using wBTC, ETH, or any other supported asset as collateral.

To borrow, one must deposit a larger collateral than the loan amount. For example, to get a $1,000 loan in USDT, collateral of $1,500 or higher must be locked to cover volatility.

It is a form of leverage because provided prices keep rising, the borrower need not worry about liquidation. Only once prices begin cooling off can the borrower consider repaying the loan lest the protocol liquidate the collateral.

wBTC Liquidations on Aave and Compound DeFi

This is what precisely happened on February 3 when prices tanked across the board.

Users who had taken loans locking in wBTC, a stablecoin tracking BTC prices, lost their assets on Aave and Compound after the protocol automatically liquidated these coins.

According to Santiment, over $782,000 worth of wBTC were liquidated on Aave v2, the highest since August 1, 2024.

On Aave v3, which is known for its enhanced risk management and risk capabilities, over $23.7 million of wBTC were sold–the highest liquidation day ever.

The Bitcoin price drop to $91,500 triggered mass crypto liquidations across exchanges and top DeFi protocols like Aave and Compound

(Source)

Meanwhile, borrowers on Compound weren’t spared. When prices crashed to $91,500, over $467,000 of wBTC were forcefully closed. On Compound v3, more than $18.5 million worth of wBTC collateral had to be sold to protect lenders and stabilize the protocol.

(Source)

As sanity resumes after the deleveraging event, the total value locked (TVL) of Aave and Compound stands at $16.8 billion and $2.3 billion, respectively, according to DeFiLlama.