Ichi’s ICHI governance tokens have plunged some 90% after a series of cascading liquidations
Ichi’s ICHI governance token has dropped around 90% in the past 24 hours following a series of in-group liquidations on the profit-generating platform Rari.
The cascade liquidation of a pool led to a sudden drop in the price of ICHI tokens
“The Ichi Fuse Pool (#136) is currently experiencing bad debt due to cascading liquidations,” Rari said in a tweet late Monday. “This is a permissionless pool that is owned and operated by Ichi Foundation.”
The Ichi Fuse Pool (#136) is currently experiencing bad debt due to cascading liquidations.
This is a permissionless pool that is owned and operated by @ichifoundation. We hope to see an announcement from Ichi regarding redemption strategies and next steps to make users whole.
— Rari Capital (@RariCapital) April 11, 2022
The drop occurred when the Rari’s Fuse protocol automatically sold holdings in pool #136 to support the value of the pool. However, the low liquidity for tokens on decentralized exchanges (DEXs) means that prices suddenly plummet and funds are exhausted. At the time of writing, the liquidity is at 0 USD as the entire pool was wiped out due to the cryptocurrency price drop yesterday.
Pool #136 on Rari contains assets issued by Ichi. The data shows that around $124 million from WBTC, oneBTC, ICHI and six other assets – has been locked on the Fuse protocol.
Ichi has put a collateral factor of 85% on ICHI and allowed hundreds of millions of dollars to be used as collateral. The collateral factor refers to the maximum amount that can be borrowed against the asset supplied. This means users must provide 100 ICHI as collateral to borrow up to 85 ICHI for other assets at any given time.
Aswath Balakrishnan, vice president of research at Delphi Digital, explained in a Telegram announcement: “Liquidity is structured so much of it is just below market price, allowing this team to absorb selling with great impact. There was not enough liquidity to cover all the ICHI liquidations, causing the price to drop like water.”
A collateral factor of 85% is extremely high. Additionally, the team didn’t use supply caps and allowed an infinite amount of $ICHI to be used as collateral. This allowed $ICHI holders to borrow extensively against uncapped collateral.
— Jack Longarzo (@JackLongarzo) April 11, 2022
Rari developers believe that high collateralization and lack of supply cap have contributed to this slide. “A collateral factor of 85% is extremely high,” Rari developer Jack Longarzo wrote in a tweet. “Additionally, the team didn’t use supply caps and allowed an infinite amount of $ICHI to be used as collateral. This allowed $ICHI holders to borrow extensively against uncapped collateral. if you see collateral in a pool significantly in excess of what can be liquidated, this is a red flag. Cascading liquidations can cause the price to decline quickly, dry up the liquidity, and leave the pool with bad debt,” he added.
ICHI price chart for the last 24 hours | Source: CoinGecko
ICHI was trading at over $120 but since the pool liquidation started happening around 19:30 yesterday and continued until 09:30 am this morning, the price has dropped to $12.5 and is fine determined since then. Market capitalization hit $53 million at press time, down significantly from yesterday’s $579 million.
- The Luna Foundation Has Continued To Stack Bitcoin Purchasing An Additional 4,130 BTC
- Shiba Inu Is Now The Biggest Investment Of These Whales After The Second Most Popular Coin – Ethereum