Let’s talk about on-chain liquidations.
When collateral prices fall too quickly for liquidation to be completed in time, the remaining collateral may not be enough to repay the debt, leaving the protocol with bad debt.
Here’s another thing worth considering: most liquidations are carried out by off-chain bots. These programs continuously monitor on-chain positions and submit a liquidation transaction as soon as the health factor drops below 1.
Repaying early or adding collateral usually results in a smaller loss than waiting to be liquidated, since liquidation incurs an additional penalty.
$COMP is the governance token of the lending protocol Compound.
This is not investment advice.
When collateral prices fall too quickly for liquidation to be completed in time, the remaining collateral may not be enough to repay the debt, leaving the protocol with bad debt.
Here’s another thing worth considering: most liquidations are carried out by off-chain bots. These programs continuously monitor on-chain positions and submit a liquidation transaction as soon as the health factor drops below 1.
Repaying early or adding collateral usually results in a smaller loss than waiting to be liquidated, since liquidation incurs an additional penalty.
$COMP is the governance token of the lending protocol Compound.
This is not investment advice.
