Liquidation by the protocol


Currently, if I get liquidated, Aave requires the service of an external actor.
The impact is then :

  • I’m at loss
  • No impact for the protocol
  • The liquidator is winning

Why doesn’t Aave liquidate my position itself?
The benefits could then :
-Go to the safety module
-Be given back to me
-Go to the $aave holders

Is it technically to complicated?

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@ootsun - this is an interesting inquiry, I am not sure of the technical capabilities or limitations.

As for liquidations, there is a greater need for continuing education and awareness by new users.

Flipside has made a tool to do this and better inform users:

Screen Shot 2022-01-11 at 4.17.35 PM .

Liquidation is an unforgiving mechanism. Hope you may find this helpful :slight_smile:

It’s complicated. Liquidations are a last resort by the protocol to protect depositor funds. This job is especially important during sharp market downturns, and this is when things can become very volatile and uncertain.

For example, on-chain liquidity may suck during a market crash, in which case you need to compensate the liquidators to take the risk of bridging assets to other exchanges and hopefully get a better price. No lending protocol takes pleasure in having users be liquidated, but that’s the contract you agree to when you borrow funds.

Also, AAVE having control over the liquidations would mean that the system is not decentralized. It would be possible for AAVE to neglect its responsibility to protect the solvency of the protocol, and only depositors would suffer financially. Liquidations being open and well compensated lets depositors be confident that liquidators are properly incentivized to protect their funds. Any other known alternative simply provides weaker guarantees.

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This is a nice tool! Thanks for sharing :)

As I’m sure you are aware of, Liquity does the job itself.
Would you say that its mechanism is risky and too dangerous?

Liquity uses the LUSD staked in the stability pool.
Couldn’t Aave implement something similar?
I would love that my aUSDC aquires me a greater revenue by being used for liquidations!

I understand that the dev might have other priorities. But If my idea isn’t realistic, I would like to understand why.

Make it an EIP and have a vote

Liquidations are the first resort, no? Very good points on decentralization.