The collateral lost 27.74% in a day while the loan terms assumed a slower market
Should the lender raise the collateral margin it requires on ETH-backed loans now, or keep its terms and rely on automatic liquidation at the existing trigger?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 17 May 2021, ETH fell 41.47%, from 3,581.81 to 2,096.39, including a 27.74% fall on 19 May and a -13.08% hour starting 12:00 UTC that Wednesday. An illustrative lender accepts ETH as collateral and sells it when coverage drops below a fixed trigger. Its terms were set in calmer weeks, and this week ETH also lost 21.59% against BTC, so ETH collateral lost value faster than BTC collateral.
Judgment
A liquidation trigger only protects the lender if the collateral can be sold near the trigger price. A 13.08% hour can carry collateral straight through the trigger and the cushion behind it. Raise the required margin for ETH relative to BTC, and set it from the worst hourly and daily moves rather than the weekly average. Existing loans keep their terms; new loans use the higher margin.
What would change it
If the lender's own records show that its liquidations this week were filled close to the trigger price, the case for a higher margin weakens. If ETH's hourly moves shrink back for several weeks, the margin can be reviewed.
What sets this case apart
The decision turns on how fast collateral can lose value within an hour, not on the size of the weekly loss.