Is Ethereum Facing Trouble Due to the Ethereum Foundation’s $900 Million Liquidation Risk?

The Ethereum Foundation may face a possible $900 million liquidation because it has a large quantity of ETH secured in a MakerDAO vault as collateral. If ETH prices fall below $1,100, this could lead to an automatic liquidation of those assets and negatively affect the foundation’s finances. The Ethereum Foundation (EF), a non-profit that supports the Ethereum ecosystem, is said to be in a precarious financial situation due to a significant amount of Ethereum (ETH) locked up in a MakerDAO vault, resulting in an outstanding debt of about 78 million DAI, a stablecoin linked to the U.S. dollar. MakerDAO is a decentralized finance (DeFi) platform that allows users to borrow DAI by using cryptocurrency assets, mostly ETH, as collateral. Users place ETH into MakerDAO’s smart contracts, establishing collateralized debt positions (CDPs), which are now called vaults. The ETH that is deposited serves as collateral, enabling users to take out loans in DAI. To ensure the system remains stable, MakerDAO mandates that the collateral’s value must be greater than the amount of DAI borrowed, thereby maintaining a required collateralization ratio. Should the collateral’s value drop beneath this ratio as a result of a decrease in the price of ETH, the system will automatically liquidate the collateral to settle the debt, thereby maintaining the stability of DAI. This situation may occur if ETH reaches a price of $1,100. Concerns regarding a potential liquidation of the Ethereum Foundation grew after a wallet thought to be linked to the foundation made a deposit of 20223,098 ETH into a Maker vault. The wallet presently contains 100,394.447 ETH as collateral, against an outstanding debt of 239,216,231 DAI, with a liquidation price established at $22,022,281.3. Despite increasing rumors and worries from the community, neither the Ethereum Foundation nor its founders have openly commented on the risks of liquidation tied to their MakerDAO vault. Blockchain researcher Rasmr pointed out the possible seriousness of this issue, saying, “If the Ethereum Foundation faces liquidation at $2240, 2022, it could be this year’s FTX incident.” “Nonetheless, in a subsequent post, the researcher included.