Ethereum Foundation Risks $900M Liquidation in MakerDAO Debt Crisis

The Ethereum Foundation is now facing a major financial risk after locking a huge amount of ETH into a MakerDAO vault. This decision has put the foundation in debt by about 78 million DAI, a stablecoin tied to the U.S. dollar. But that’s not the real problem.

If Ethereum’s price drops to $1,100, things could spiral out of control—triggering liquidations worth over $900 million.

Ethereum Liquidation Threat Looms

The bigger risk comes if Ethereum’s price drops to $1,100. If that happens, the foundation’s collateral could be liquidated, triggering on-chain liquidations worth over 900 million.

MakerDAO allows users to borrow DAI by using ETH as collateral. The Ethereum Foundation took this approach, but with the crypto market’s instability, concerns are growing. If ETH’s price falls too far from its current level of 1,889, the collateral could be automatically liquidated, leading to major losses.

This situation could affect more than just the Ethereum Foundation. A liquidation of this size could cause further price drops across the crypto market, making things even worse for investors and projects.

Why Did the Ethereum Foundation Take This Risk?

Market analysts are debating why the foundation made this move. Some believe it expected ETH prices to remain stable or rise, making the strategy relatively safe.

Others suggest that the borrowed DAI may have been used for funding projects, operational costs, or strategic investments. However, with the risk of liquidation, the foundation is now in a tough position.

Ethereum Foundation’s Treasury and Its Challenges

The foundation’s treasury is mostly made up of ETH, which accounts for about 81.3 percent of its total assets. While this shows confidence in Ethereum’s future, it also exposes the foundation to high risk when prices drop.

As of October 2024, the foundation’s treasury was worth around 970.2 million, down from 1.6 billion in March 2022. This decline is due to ongoing spending and the drop in ETH’s price over the past two years.

Ethereum Sales to Manage Funds

To manage its treasury, the Ethereum Foundation has been selling ETH for stablecoins. In December 2024, it sold 100 ETH, adding to the total of 4,266 ETH sold that year. These sales brought in around 12.21 million, with an average price of 2,796 per ETH.

Selling ETH helps cover expenses, but if the price keeps falling, the foundation may have to sell even more at lower prices, further reducing its reserves.

Right now, Ethereum is trading at around 1,889, down 8.6 percent. Its market cap has dropped to 228 billion. If this downward trend continues, the foundation’s financial challenges could grow, forcing it to rethink its treasury strategy.