DeFi Giant MakerDAO Braces For Celsius Liquidation As stETH Slumps

MakerDAO said on Thursday it will disable direct deposits with peer Aave due to the latter’s high exposure to a potential Celsius liquidation. 

The move was bought up in a governance proposal that was approved by the MakerDAO community, and is set to be executed on June 17.

MakerDAO, which is the largest DeFi platform by total value locked (TVL), said the proposal was to reduce a potential risk from Aave’s exposure to beleaguered crypto lender Celsius.

Celsius recently suspended withdrawals due to a liquidity crunch stemming from a tumble in Lido-Staked Ethereum (stETH) prices.

MakerDAO sees a risk from Celsius

Celsius has borrowed about $100 million from the $200 million lent on the Aave-Maker portal. The loan is collateralized by stETH, and is denominated in the DAI stablecoin.

The loan  has a proposed  liquidation threshold of 90%. A recent drop in stETH prices has bought the token dangerously close to trading at 90% of Ethereum prices.

The protocol fears that if they keep the account in operation, it will potentially be risky for the MakerDAO because of the liquidation terms.

DAI could also face a potential depeg if Celsius’ position were to be liquidated.

With general sentiment now expecting a Celsius bankruptcy, Aave and MakerDAO are exposed to a high amount of risk. 

ETH, stETH rift widens

stETH is currently trading at 0.93 Ethereum, at $1,060.52. Its recent depeg was initially triggered by major holder Alameda Research offloading all of its tokens.

While the token has no direct impact on Ethereum prices, its use in collateral on DeFi platforms has threatened several major holders, including Celsius and hedge fund Three Arrows Capital, with liquidations.

Several positions have already been liquidated, which in turn caused a nearly 40% slump in Ethereum prices this week.

MakerDAO is already exposed to Celsius through a $500 million position on Wrapped Bitcoin. If the position is liquidated, Bitcoin prices would see a large dump on the open market.

Bitcoin is currently trading at $21,200. It needs to fall to about $16,000 to liquidate Celsius’ position on MakerDAO.