Ethereum Foundation Risks $900M Liquidation If ETH Price Drops to $1,100

The Ethereum Foundation is now facing a major financial risk after locking a huge amount of ETH into a MakerDAO vault.

The Ethereum Foundation is facing a major financial risk after locking up a huge amount of ETH in a MakerDAO vault to secure a 78 million DAI loan, according to DeBank data.

This action has left the foundation in debt by about 78 million DAI, a stablecoin tied to the U.S. dollar. But the real danger lies ahead—if Ethereum's (CRYPTO: ETH) price crashes to $1,100, the foundation's collateral could be liquidated, triggering on-chain liquidations worth over $900 million.

Here's a closer look:

MakerDAO enables users to borrow DAI by providing ETH as collateral. The minimum required ratio for borrowing in a MakerDAO vault is 150%, which means that for every 1 DAI borrowed, users need to provide at least 1.50 units of ETH as collateral. In this case, the foundation locked up 46,000 ETH to borrow 78 million DAI, exceeding the required minimum ratio with a 153% factor.

However, if ETH's price falls too much from its current price of $1889, the collateral could be automatically liquidated, leading to a loss of 900 million. This situation puts not just the Foundation at risk but also impacts the global crypto market, as such a large liquidation could cause further price drops.

While the crypto community is aware of the foundation's debt, some analysts are speculating about the reasons behind this move.

"It's strange that the Ethereum Foundation took out a loan in the first place. Maybe they're expecting the price to rise, or they're planning to use the borrowed funds for something else," one analyst remarked.

Another analyst pointed out that the borrowed DAI could be used for funding projects, operations, or strategic investments. Ultimately, only the Ethereum Foundation knows the true purpose of the loan and what drove them to take on such a large debt.

The Ethereum Foundation holds a large amount of ETH in its treasury, making up about 81.3% of its total assets. This shows confidence in Ethereum's future but also creates an opportunity cost during price drops.

According to a report by TokenInsight, the foundation's treasury was worth about $970.2 million as of October 2024, falling from $1.6 billion in March 2022. This decline is due to both spending and ETH's price drop over the past two years.

To manage its treasury, the Ethereum Foundation has been selling ETH from time to time. In December 2024, it sold 100 ETH for stablecoins, adding to a total of 4,266 ETH sold that year. This brought in about $12.21 million, with an average selling price of $2,796 per ETH. These sales help cover expenses, but if ETH's price keeps falling, the foundation may need to sell more at lower prices.

As of now, Ethereum's price is trading around $1889, reflecting a drop of 8.6% with its market cap plunging to $228 billion.