【One-Minute Explainer】Why can on-chain loans be liquidated?
Take Aave as an example: once a borrower’s health factor falls below 1, any address can act as a liquidator and initiate liquidation.
If many people use the same token as collateral, a sharp drop can trigger cascading liquidations. The concentrated sell-off of liquidated collateral can then drive prices down even further.
$COMP is the governance token of the lending protocol Compound. It is currently at 18.25.
Every yield comes with its own risks. Think about the worst-case scenario.
Take Aave as an example: once a borrower’s health factor falls below 1, any address can act as a liquidator and initiate liquidation.
If many people use the same token as collateral, a sharp drop can trigger cascading liquidations. The concentrated sell-off of liquidated collateral can then drive prices down even further.
$COMP is the governance token of the lending protocol Compound. It is currently at 18.25.
Every yield comes with its own risks. Think about the worst-case scenario.
