How to Protect Your Portfolio in Volatile Markets
The cryptocurrency market is known for its high volatility, but the recent $10 billion liquidation event shook traders worldwide. According to Bybit’s CEO, Ben Zhou, the estimated market liquidations were five times higher than initial reports, with over 730,000 traders affected. As market swings continue to challenge both retail and institutional investors, understanding the risks of forced liquidations and leveraged trading is crucial for survival in DeFi.
In this article, we’ll break down what happened, why liquidations occur, and how decentralized finance (DeFi) solutions — like CDPs — can help mitigate these risks and provide a safer way to access liquidity.
What Triggered the $10 Billion Liquidation?
On February 3rd, 2024, the crypto market saw a sharp correction, leading to over $2.24 billion in liquidations within 24 hours, with Bybit alone reporting $2.1 billion in forced sell-offs. However, Zhou believes the actual figure is closer to $8–10 billion, citing limitations in API reporting across major exchanges.
This liquidation event was compounded by growing macroeconomic fears, including concerns over a global trade war. These external pressures contributed to increased market panic, wiping out traders who were over-leveraged and forcing rapid liquidation across exchanges.
One trader managed to profit from the market crash, making $16 million on a 50x leveraged short position — highlighting the dangers and rewards of high-risk leverage trading.
Why Do Liquidations Happen in Crypto?
A liquidation occurs when a trader fails to meet the margin requirements of a leveraged trade. When prices move against their position, exchanges automatically sell their assets to recover borrowed funds.
Common causes of mass liquidations include:
• High leverage trading: Borrowing large amounts with minimal collateral.
• Low collateral coverage: Failing to maintain enough margin in volatile conditions.
• Market manipulation & forced liquidations: Rapid price swings triggering stop-losses and liquidation engines.
• Macro-driven volatility: Economic policies, geopolitical tensions, and regulatory news influencing investor sentiment.
These factors make leveraged trading highly risky, often leading to cascading liquidations, where one forced sell-off triggers others, amplifying price crashes.
How DeFi Can Provide Safer Liquidity Solutions
Rather than relying on centralized exchanges with forced liquidations and margin calls, DeFi solutions like Preon Finance provide a safer way to access liquidity without excessive risk.
Preon’s Collateralized Debt Positions allow users to borrow stablecoins like $STAR against their crypto holdings without the fear of sudden liquidations from minor price fluctuations.
• Zero-Interest Borrowing: Unlike centralized margin trading, Preon lets users borrow at 0% interest, avoiding interest accrual that could lead to rapid liquidation risks.
• Overcollateralization for Stability: Loans on Preon require strong collateral ratios, reducing the risk of under-collateralization and forced sell-offs.
• No Hidden Fees or Liquidation Triggers: Unlike CEXs, DeFi lending ensures transparent liquidation thresholds, giving users full control over their assets.
• Decentralized & Permissionless: Users retain custody of their funds, reducing the risks associated with centralized exchange failures.
By leveraging DeFi tools like Preon, traders can avoid high-risk leverage strategies while still accessing liquidity in volatile markets.
Final Thoughts: Staying Safe in Crypto’s Wild Market
The $10 billion liquidation event serves as a reminder of the risks of over-leveraging in crypto. While leverage can amplify gains, it can also wipe out entire portfolios in minutes — especially during macro-driven market turbulence.
DeFi protocols like Preon Finance offer a more sustainable approach to liquidity, giving users the ability to borrow without excessive risks while maintaining long-term financial security.
Want to take control of your liquidity without the fear of liquidation? Explore Preon Finance’s blog and join our community on Discord today!
