Ethereum DeFi liquidation hits record high, with nearly 100 ETH in one block

On February 23, the cryptocurrency market experienced a day of panic as Bitcoin plummeted from nearly $55,000 to around $45,000 in just 12 hours, with tens of billions of dollars evaporating in a short period of time.

At the same time, affected by panic selling, the Ethereum blockchain network was congested and unusually high transaction fees appeared. According to OKLink data, at 16:07:37 on February 23, the transaction fee of Ethereum at block height 11912124 reached 96.81 ETH. Two transactions with abnormally high transaction fees appeared in this block, with fees of 44 ETH and 29.43 ETH respectively.

Looking back at past market conditions, there are generally two reasons for high fees:

One is user error . For example, on February 19, 2019, an abnormal transaction occurred at the Ethereum block height 723829. An account with an address starting with "0x587Ecf6" transferred 0.1 ETH to another address, but the transaction fee was as high as 2100 ETH. Most of the previous transaction records of this account were small transfers. Therefore, some analysts believe that the user mistakenly set the unit of Gas Price to 0.1 ETH (usually Gwei), consuming a total of 21,000 Gas, so the total transaction fee was as high as 2100 ETH.

The second is the transfer of funds from mining pools . For example, on June 10, 2020, an account with an address starting with "0xcdd6a2b" on the Ethereum network transferred 0.55 ETH, with a transaction fee of 10,669 ETH. The next day, the same account transferred 350 ETH, with a transaction fee of 10,669 ETH. An analysis agency analyzed the transfer and receiving addresses and suspected that the receiving address was the miner, and the mining pool paid the sky-high handling fee.

Different from the above two cases, what is the reason for the high fees in the two transactions that occurred 17 hours ago? It may be DeFi liquidation.

Against the backdrop of the big pullback on February 23, the liquidation volume of lending protocols on Ethereum reached $131 million, surpassing the record of $93.3 million in November 2020, setting a new record high. Among them, the liquidation volume on Compound reached $100 million, ranking first. Aave V2 ranked second with $10.97 million.

By observing these two transaction records, it is not difficult to find that:

The account with the address starting with "0x3241d46" has a balance of 591.438 ETH. In the past month, 15 transfers have occurred to the same address (starting with "0x681bd23"), with transaction fees ranging from 0.005 to 44.02 ETH. Most of the transferred currencies are DeFi tokens, including DAI, ZRX, UNI, cDAI, cETH, cWBTC, cUNI, cCOMP, etc.

The account with the address starting with "0x23823fb" has a balance of 148.59 ETH. Yesterday afternoon, more than 20 transfers were made to the same address (starting with "0x333388") within two hours, with handling fees ranging from 0.016 to 29.43 ETH. Most of the transferred currencies are also DeFi tokens, including DAI, UNI, cETH, WETH, cUNI, cBAT, etc.

The extreme market conditions brought about a chain reaction, with $1.64 billion of Bitcoin futures contracts being liquidated, which also caused a large-scale liquidation of DeFi. The network congestion under the flash crash prevented some traders from closing their positions in time. At the same time, Binance Exchange suspended withdrawals of Ethereum and ERC20 tokens due to network congestion, further hindering the speed of closing positions. In this case, traders will choose to increase gas fees to achieve timely stop losses. Correspondingly, Ethereum miners' revenue in February exceeded $1 billion, also a record high, of which $541 million was in the form of transaction fees.

The outbreak of DeFi has driven Ethereum to take off, but it has also brought high handling fees and liquidation risks under extreme market conditions. It is worth looking forward to that in the near future, Ethereum EIP-1559 will change all this. According to Ethereum developer Ryan Berckmans, Ethereum EIP-1559 may be launched in the "London" fork in July. It is reported that EIP-1559 attempts to reduce transaction fees by introducing fixed fees and destruction mechanisms. It was first proposed by Vitalik in 2018 and is expected to make the fee market of the Ethereum blockchain more predictable and relieve congestion.