- lending protocol work by requiring users to deposit some collateral. users can then borrow different assets and tokens from others depending on what they need, up to a certain amount of their deposited collateral. as the value of a borrower's collateral fluctuates, if the value of the borrowed assets exceeds the value of the collateral, the protocol allows anyone to liquidate the collateral (similar to margin calls in traditional finance).
- liquidation happens when a user buys someone's collateral (at a discount) when the value of borrowed asset exceeds a predetermined value relative to the asset deposited as collateral.
- searchers compete to parse blockchain data as fast as possible to determine which borrowers can be liquidated and be the first to submit a liquidation transaction and collect the liquidation fee.
- example of strategy: bot detects a liquidation opportunity at a block and issues a liquidation tx, which is expected to be included in the next block. to compete with other liquidators, the bot sets high tx fees for their liquidation tx.
- another strategy: bot observes a tx that will create a liquidation opportunity (e.g., an oracle price update tx rendering a collateralized debit to be liquidated), then backruns this tx with a liquidation tx to avoid the fee bidding competition.
- anatomy of liquidator bots
- notes on lending as a trader
- liquidation dashboard, by eigenphi
- understanding compound's liquidation, by zengo
- nahtan worsley's liquidation strategies, by forbes
- cycle of liquidations in the CRV pool
- how to build a liquidator bot for defi, by powpark
- liquidators, the secret whales helping defi, by tom schimidt
- mitigating defi liquidations with reversible call options, by qin et al