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High-Risk Crypto Loans Surge to Highest Level in 2 Years, What Does This Mean?

Author: Content Editor
The growth of high-risk cryptocurrency loans, driven by arbitrage opportunities in the crypto market, is concerning for the digital asset space, according to analysts. Data from IntoTheBlock shows that these loans have reached levels not seen since the crash of many crypto lenders in May/June 2022. High-risk loans are those within 5% of liquidation, where the collateral posted is close to its liquidation price. If the assets' prices fall below this level, traders can lose their collateral, leading to bad debt and losses for lenders. Rapid market plunges can cause collateral to become insufficient, triggering a downward price spiral in cryptocurrencies and preventing lenders from adding new liquidity to mitigate losses. The last time high-risk loans reached this level, several crypto firms, including lending platforms, became insolvent. The collapse of the TerraLUNA ecosystem, triggered by volatility in cryptocurrencies, caused massive liquidations and worsened the crypto winter.

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