The leveraged Ethereum position built by Jack Yi’s trend research continues to loosen under pressure.
The position was raised through Aave’s lending protocol and reportedly peaked at around $958 million in borrowed stablecoins, but has been reduced by repeated defensive selling as Ethereum’s price has fallen.
On February 4, Trend deposited an additional 10,000 ETH (approximately $21.2 million) to Binance to sell and repay the loan, according to on-chain tracking profile Lookonchain.
This position currently holds 488,172 ETH, worth approximately $1.05 billion at current prices.
Deleveraging began in early February, when Trend sold 33,589 ETH (approximately $79 million) and used $77.5 million USDT to repay debt, increasing the reported liquidation threshold from $1,880 to $1,830.
The sale on February 4th marks the latest step in a controlled pullback aimed at keeping Ethereum above water as it falls.
Markets are watching how the mechanics of unwinding billions of dollars of leveraged bets in the face of illiquidity can trigger cascades that move markets faster than the currents themselves suggest.
What the numbers show
Lookonchain reported that Trend Research increased the leverage of its Aave-based borrowed stablecoin to approximately $958 million, backing its peak holdings of approximately 601,000 ETH.
This position used Ethereum as collateral to borrow stablecoins, creating a loop where the value of the collateral decreased as the ETH price declined. At the same time, with a classic leveraged long structure, the debt remains fixed.
Trend has sold at least 112,828 ETH in multiple transactions since early February. The position decreased from approximately 601,000 ETH to 488,172 ETH, a decrease of approximately 19%.
At the current price around $2,150, the remaining position is worth approximately $1.05 billion.
Arkham previously estimated that unrealized losses on positions had been reduced by about $562 million when liquidation risk first surfaced around the $1,800 level. The position is now down $862 million from the end of January.
The data suggests multiple Aave positions with different liquidation thresholds, including one leg at approximately $1,558, indicating that the structure may be more complex than a single monolithic trigger.
The repeated sales indicate a strategy to pre-empt forced liquidations by voluntarily reducing exposure. Each sale repays the debt, reducing the total amount of outstanding debt and improving the prudence factor, which is the ratio of collateral value to debt value that determines liquidation eligibility.
However, each time you sell, you lock in a loss and reduce your remaining stake.
How Aave Clearing Actually Works
Aave liquidation does not release collateral to the open market in single block transactions.
Instead, they transfer the collateral to a liquidator, who then repays a portion of the borrower’s debt and receives the seized ETH and liquidation bonus. The liquidator then decides how and where to offload or hedge that ETH.
The liquidation process is initiated when the health factor of a position falls below 1. Aave’s closing factor determines the amount of debt that can be repaid in a single liquidation event.
If your health factor is between 0.95 and 1, up to 50% of your debt can be cleared. If the health factor falls below 0.95, up to 100% of the position may be liquidated.
This creates two situations. A gradual and manageable process if the position is near a threshold, or a cliff if the health factor plummets.
The amount that can be liquidated varies depending on the remaining balance. If Trend is successful in reducing debt through recent sales, the maximum liquidation flow will be less than the original $941 million to $958 million debt range.
However, the remaining 488,172 ETH still represents approximately $1.05 billion in collateral, enough to move the market if forced liquidations accelerate.
Ethereum’s 24-hour trading volume reaches approximately $49 billion. If even half of the remaining positions were liquidated, around 244,000 ETH or $525 million at current prices, that would be around 1% of the daily trading volume.
That seems understandable until two reality checks complicate the calculation.
First, time compression is important. If a liquidator needs to unload quickly within minutes or hours, that flow will represent a large portion of short-term liquidity, even if it is a small percentage of 24-hour trading volume.
Second, liquidity is endogenous under stress. During leverage-driven declines, liquidity becomes vulnerable and forced flows can occur that move prices more than volume calculations suggest.
cascade pathway
The market impact of Aave’s massive liquidation is not driven by a single sell order. It does so through three mutually reinforcing channels.
The first is direct clearing processing and hedging. Liquidators often immediately hedge by shorting perpetual futures and then unwind the seized ETH by selling it into spot or decentralized exchange liquidity.
This creates pressure from both sides: forward selling and spot selling.
The second is a reflexive feedback loop. The spot price falls, the oracle price updates, and more Aave positions cross the health factor threshold of less than 1, triggering additional liquidations.
These liquidations put more ETH into the hands of liquidators who sell or hedge, causing the spot price to fall. This cycle repeats.
The third is narrative and balance sheet pressure. Even outside of DeFi protocols, large holders facing unrealized losses may be prompted to engage in defensive selling to avoid worse outcomes.
The repeated sales of trends are indicative of this dynamic.
what to see
Three indicators indicate whether this will be mitigated in a contained or gradual manner.
First, how does Aave Health Factor work? The trend’s repeated voluntary sell-offs suggest that prudential factors are being actively managed and are above the threshold for forced liquidation.
If Ethereum’s decline accelerates and the trend is unable to sell fast enough, the health factor could fall below 1.
Second, where the discard is printed. The 10,000 ETH deposit into Binance on February 4th suggests that the centralized exchange order book is absorbing flows. Look out for larger deposits and faster execution time frames. This may indicate panic rather than controlled deleveraging.
Third, the broader clearing environment. If the increase in forced sales in Ethereum and the broader crypto market continues, the same trend will have a significant impact on prices as liquidity providers exit and order books become thinner.
A multi-billion dollar position at risk is more than just a single trade. This tests how DeFi’s liquidation mechanisms, thin liquidity, and reflexive loops interact when leverage encounters stress.
Trend Research’s Controlled Exit shows strategies to stay ahead of forced liquidation and survive.
The success of that strategy will depend on how fast Ethereum declines and how much liquidity is left in the market to absorb that flow.
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