Key points:
- XRP Mortgage Loan Faces $8.84 Million in Liquidation Risk
- If it falls another 10%, it could affect 1,070 positions.
- Borrowers can reduce risk by adding collateral.
As XRP has recently faced market selling pressure, a mortgage loan of approximately $8.84 million in XRP could enter the liquidation range if the collateral price falls another 10%, putting over 1,000 leveraged positions at risk.
Analysis of the lending data on the Morpho chain on November 6th showed that there were 1,070 positions on the Base network of Coinbase that were close to the liquidation threshold. The relevant calculations used the loan balances and collateral values recorded at around 13:24 on UTC.
XRP Mortgage Loan Faces Potential Liquidation of $8.84 Million
The affected Morpho markets allow borrowers to use cbXRP as collateral to borrow USDC stablecoins.
As of the snapshot on November 6th, the market had approximately 59.2 million USDC in outstanding debt, which was secured by 119.9 million cbXRP.
If the price of the collateral oracle falls another 10%, $8.84 million in debt will come within the range that can be liquidated, which is approximately 15% of the total loan amount.
Even a 5% decline could expose 462 positions to a debt risk of approximately $3.23 million.
There is an overlap in these scenarios: these 462 positions are included within a larger group of 1,070 positions and cannot be counted repeatedly.
The above discovery came shortly after a 10% price slump of XRP, during which the cryptocurrency fell to a 11-week low, with prices once approaching $1.18.
Coinbase has previously expanded its encrypted collateral lending service to XRP, allowing eligible customers to borrow stablecoins without having to sell their holdings immediately.
Why does a decline in the price of XRP trigger liquidation?
The cbXRP lending market of Morpho adopts a clearing loan-to-value ratio threshold of 62.5%.
When the borrower's outstanding debt exceeds this proportion of the value of the collateral, it enters a liquidatable state.
For example, if the initial loan-to-value ratio for a loan is 60%, after the value of the collateral falls by 10%, assuming that the amount of debt and the quantity of collateral remain unchanged, this ratio will rise to approximately 66.7%.
Borrowers can reduce risk by repaying the loan or adding additional collateral.
This mechanism is different from the proposed XRPL native lending system, which still requires approval from verifiers.
The broader market for XRP mortgage credit is also expanding.
Coinpaper Previous reports stated that 225 million XRP supported a $152 million loan for Maple, but these arrangements were subject to different lending terms.
XRP Will the liquidation exacerbate selling pressure?
When the Morpho position enters a liquidatable state, external liquidators can repay debts in exchange for collateral and liquidation incentives.
However, receiving cbXRP does not mean that the native XRP has already been sold on the exchange.
In a 10% stress scenario, it is reported that these positions hold approximately 12.73 million cbXRP as collateral. Any subsequent sales will require separate transaction evidence.
Other lending products related to XRP have also launched similar borrowing opportunities, including the RLUSD lending integration of Flare.
Ripple also explored the possibility of using XRP as collateral for institutional credit, demonstrating how lending can expand the financial uses of XRP, while also bringing additional risks.
Marcus Hale
Marcus Hale is a cryptocurrency and financial markets contributor who reports on Bitcoin, Ethereum, digital assets, regulation, ETF, and the adoption by institutions. His work focuses on developments that impact the market, investor trends, and the broader forces that shape the crypto economy.
