I getting liquidated pays out in a coin you never touched.
I figured if my position ever got liquidated, I'd just... lose BTC. straightforward enough. turns out that's not even how it works here.
Trustless Bitcoin Vaults (TBV) locks your BTC on Bitcoin itself, and Bitcoin doesn't move at Ethereum speed. if every liquidation had to wait for a Bitcoin-side redemption, it'd be too slow to keep lending markets healthy. Aave can't afford that.
so the design separates liquidation from redemption.
when a position gets liquidated, a liquidator takes the seized TBV vault, swaps it for WBTC at a small premium, and repays the debt immediately. everything settles at Ethereum speed. the actual BTC redemption happens later, with arbitrageurs buying those escrowed vaults and redeeming the underlying BTC on Bitcoin's own timeline.
kind of funny actually. TBV is designed so users don't have to rely on WBTC as their Bitcoin exposure, yet WBTC still ends up acting as the liquidity bridge that keeps liquidations fast.
what I'm curious about is how that premium behaves during a real market cascade. on a calm day it's probably tiny, but when volatility spikes, does the cost of that bridge stay efficient, or does it become a meaningful source of liquidation friction?
@BabylonLabs_io $BABY #baby
#Bitcoin #defi #Babylon
I figured if my position ever got liquidated, I'd just... lose BTC. straightforward enough. turns out that's not even how it works here.
Trustless Bitcoin Vaults (TBV) locks your BTC on Bitcoin itself, and Bitcoin doesn't move at Ethereum speed. if every liquidation had to wait for a Bitcoin-side redemption, it'd be too slow to keep lending markets healthy. Aave can't afford that.
so the design separates liquidation from redemption.
when a position gets liquidated, a liquidator takes the seized TBV vault, swaps it for WBTC at a small premium, and repays the debt immediately. everything settles at Ethereum speed. the actual BTC redemption happens later, with arbitrageurs buying those escrowed vaults and redeeming the underlying BTC on Bitcoin's own timeline.
kind of funny actually. TBV is designed so users don't have to rely on WBTC as their Bitcoin exposure, yet WBTC still ends up acting as the liquidity bridge that keeps liquidations fast.
what I'm curious about is how that premium behaves during a real market cascade. on a calm day it's probably tiny, but when volatility spikes, does the cost of that bridge stay efficient, or does it become a meaningful source of liquidation friction?
@BabylonLabs_io $BABY #baby
#Bitcoin #defi #Babylon