Yes, and there's no way around it. The significant liquidation caused by circular loans on May 19, 2021, was also notable, with the most famous case being that Sun Yuchen's $ETH almost got liquidated. Circular loans are unavoidable; to be honest, I also use them, especially when doing DeFi arbitrage, where I collateralize less liquid assets to borrow liquid assets like USDT, which can then be used for earning interest or short-term investments.

However, I rarely engage in "nested" loans. For example, the recent issues with $BNSOL and $WBETH are cases of nested loans, where ETH is first converted to WBETH and then WBETH is used for borrowing. The reason for the decoupling of WBETH is also due to a significant amount of spot assets being sold off by the market or protocols after a price drop and liquidation, leading to the decoupling of nested coins and the native currency. This results in a one-sided decline of the nested coins, making such times the best opportunity to buy at the bottom.

What needs to be bottomed out is the exchange rate, not the price; what is required is speed, accuracy, and decisiveness. A moment's hesitation can lead to being arbitraged by bots or quantitative traders. The arbitrage opportunity for BNSOL yesterday was indeed rare. WBETH quickly almost returned to its peg.

So the main reason I wasn't liquidated is that I didn't use nested coins and only required a 50% collateralization rate. Therefore, unless the SOL price is halved at the time of my collateralization, there shouldn't be a big problem. Of course, this is also risky, especially during cascading liquidations. That's why I used cash directly to repay, avoiding liquidation instead of trying to buy at the bottom first. (Although this approach may not be correct)

This article is sponsored by #Bitget | @Bitget_zh

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