Morpho liquidates 4.18 million XRP as 883 cbXRP-backed positions unwind on Base

XRP-backed borrowers experienced significant losses on decentralized lending protocol Morpho after a series of liquidations resulted in 4.18 million wrapped XRP (cbXRP) being seized. The events took place between November 7 and November 13 on Coinbase’s Base blockchain, as falling cryptocurrency prices increased pressure on leveraged positions.

Mass liquidations follow market drop

The wave of liquidations involved 883 transactions where cbXRP was used as collateral to borrow USDC stablecoins by investors on the Base network. Analysts previously flagged the risk of forced sales, noting that $8.84 million in outstanding debt could face liquidation if XRP’s price fell by another 10%.

Within Morpho’s cbXRP/USDC lending market, borrowers become eligible for liquidation if their loan-to-value (LTV) ratio exceeds 62.5%. Once this threshold is reached, external liquidators are permitted to repay outstanding USDC in exchange for seized cbXRP collateral and a liquidation incentive.

The largest single-day event occurred on November 8, when $1.58 million in USDC debt was liquidated. Two days later, on November 10, another $1.06 million was cleared through further liquidations. Data from Morpho shows that all 883 liquidation events produced zero bad debt, indicating the seized collateral fully covered the repaid loans.

These 883 events reflect liquidation transactions rather than individual borrowers, as some addresses could have experienced multiple events.

Collateral pool remains substantial

Despite the significant liquidations, approximately $53.53 million in USDC debt remained outstanding as of November 13. This debt is backed by about 121.7 million cbXRP tokens, suggesting a deep collateral pool is still supporting the lending market.

Coinbase, a well-known US-based cryptocurrency exchange, introduced wrapped XRP (cbXRP) on Base, an Ethereum-compatible blockchain that allows XRP holders to tap into decentralized finance (DeFi) protocols. This development enabled users to utilize their XRP within Ethereum-based lending and liquidity pools.

Importantly, the forced liquidation of cbXRP collateral does not necessarily result in immediate selling of native XRP tokens on external exchanges. In one November 10 liquidation, a liquidator repaid 202,394 USDC and seized 218,175 cbXRP, later transferring these wrapped tokens to another address in exchange for USDC and wrapped ETH. However, records do not confirm whether this collateral was eventually redeemed for native XRP or sold elsewhere.

Not every remaining cbXRP-backed loan faces immediate liquidation risk, as exposure depends on how market prices and LTV ratios evolve.

Broader market context

Market volatility and recent withdrawals from crypto ETFs have contributed to bearish sentiment around XRP, with the token approaching support near the $1 mark. Excess leverage has also generated concern in Bitcoin markets, where rapid price declines have triggered forced sales of collateral amid volatile conditions.

To lower their risk of liquidation, borrowers can opt to repay outstanding debt or deposit additional collateral. Nevertheless, sudden swings in the market can limit their response time.

Differences between protocols have also come into focus. While Morpho relies on collateralized DeFi lending with automatic onchain liquidations, the proposed unsecured lending protocol on the XRP Ledger does not impose such automated measures for loan defaults.

Ongoing ETF outflows across the broader cryptocurrency sector have heightened concerns about market liquidity, although direct links to Morpho’s liquidation wave have not been established.

Mini dictionary: Morpho is a decentralized lending protocol that facilitates overcollateralized loans between borrowers and lenders, often using liquidity pools for seamless transactions without the need for intermediaries.

Morpho’s statistics show that over 4.18 million cbXRP were liquidated across 883 separate events, yet no bad debt was recorded, as seized collateral sufficiently covered all repayments.