A large cryptocurrency whale has lost over $4.5 million after attempting to leverage their long position on the second-largest cryptocurrency by market capitalization, Ethreum ($ETH) twice, having had to repay their debt on a decentralized protocol as the price dropped.
According to on-chain analysis service Lookonchain, the whale first lost around $500,000 after taking out a USDT loan on decentralized lending protocol Compound, having to later on repay the funds that they used to purchase more ETH.
The trader then made a second attempt, withdrawing funds from leading cryptocurrency exchange Binance to deposit ETH onto the protocol, which they used to borrow USDT and then subsequently buy more ETH, effectively leveraging their position on the cryptocurrency.
Details of the whale’s strategy reveal that they sold their entire holding of 10,701 ETH (valued at approximately $33 million at the time) on the Binance exchange to cover the debt incurred from their failed long position. This final move resulted in an additional loss of over $4 million.
On Compound, loans are over-collateralized, which means that to take out a loan, users have to put down collateral whose value is superior to the value of the loan itself. In the cryptocurrency space, however, there are several risks as the volatility of cryptocurrency prices could see loans easily become under-collateralized. This could trigger a liquidation.
The price of Ethereum dropped more than 14% over the past week amid a wider market downturn that also saw the price of equities plunge after tensions in the Middle East exploded, with Iran attacking Israel with drones and missiles, and the latter promising to retaliate.
Ethereum is at the time of writing trading at $3,000 per token, down from a high around the $4,000 mark seen last month but still up more than 44% over the past year.
Featured image via Unsplash.
