Corpus ID: 221970077

Liquidations: DeFi on a Knife-edge

  title={Liquidations: DeFi on a Knife-edge},
  author={Daniel Perez and Sam M. Werner and Jiahua Xu and B. Livshits},
  journal={arXiv: General Finance},
The trustless nature of permissionless blockchains renders overcollateralization a key safety component relied upon by decentralized finance (DeFi) protocols. Nonetheless, factors such as price volatility may undermine this mechanism. In order to protect protocols from suffering losses, undercollateralized positions can be \textit{liquidated}. In this paper, we present the first in-depth empirical analysis of liquidations on protocols for loanable funds (PLFs). We examine Compound, one of the… Expand

Figures from this paper

Formal Analysis of Composable DeFi Protocols
A formal process-algebraic technique that models DeFi protocols in a compositional manner to allow for efficient property verification and how the proposed modeling and verification approach can be used to analyze financial and security properties of interest is proposed. Expand
SoK: Yield Aggregators in DeFi
Yield farming has been an immensely popular activity for cryptocurrency holders since the explosion of Decentralized Finance (DeFi) in the summer of 2020. In this Systematization of Knowledge (SoK),Expand
An Empirical Study of DeFi Liquidations: Incentives, Risks, and Instabilities
This paper is the first to study the breadth of the borrowing and lending markets of the EthereumDeFi ecosystem and proposes an optimal strategy that allows liquidators to increase their liquidation profit, which may aggravate the loss of borrowers. Expand
DeFiRanger: Detecting Price Manipulation Attacks on DeFi Applications
This work proposes a platform-independent way to recover high-level DeFi semantics by first constructing the cash flow tree from raw Ethereum transactions and then lifting the low-level semantics to high- level ones, including token trade, liquidity mining, and liquidity cancel. Expand
Decentralized Stablecoins and Collateral Risk
In this paper, we study the mechanisms that govern price stability of MakerDAO's DAI token, the first decentralized stablecoin. DAI works through a set of autonomous smart contracts, in which usersExpand
Decentralized lending and its users: Insights from Compound
  • Kanis Saengchote
  • 2021
Decentralized finance (DeFi) has recently gained much attention and scrutiny because of its rapid growth. DeFi services replicate traditional financial services such as lending, exchange, and assetExpand
Financial intermediation and risk in decentralized lending protocols
We provide an overview of decentralized protocols like Compound and Aave that provide collateralized loans for cryptoasset investors. Compound and Aave are two of the most important application inExpand
From banks to DeFi: the evolution of the lending market
The challenges of traditional money markets led by banks and lending platforms are enumerated, and advantageous characteristics of DeFi lending protocols are presented that might help resolve deep-rooted issues in the conventional lending environment. Expand
MiCA and DeFi ('Proposal for a Regulation on Market in Crypto-Assets' and 'Decentralised Finance')
This paper aims to analyze the relation between the proposal for a Regulation on Markets in Crypto-assets (MiCA), an element of the Digital Finance Package of the European Commission presented on theExpand
SOK: Automated Market Maker (AMM) based Decentralized Exchanges (DEXs)
As an integral part of the Decentralized Finance (DeFi) ecosystem, Automated Market Maker (AMM) based Decentralized Exchanges (DEXs) have gained massive traction with the revived interest inExpand


SoK: Lending Pools in Decentralized Finance
This work systematize the existing knowledge about lending pools, leveraging a new formal model of interactions with users, which reflects the archetypal features of mainstream implementations, which enables it to prove some general properties of lendingpools, such as the correct handling of funds, and to precisely describe vulnerabilities and attacks. Expand
An Analysis of the Market Risk to Participants in the Compound Protocol
Compound is widely considered to be the most significant protocol that facilitates participants to trustlessly supply and borrow Ethereum assets. The protocol has grown in popularity in recent yearsExpand
Broken Metre: Attacking Resource Metering in EVM
A new type of DoS attack on Ethereum called Resource Exhaustion Attack, which uses imperfections in the metering mechanism to generate low-throughput contracts and could be financially attractive not only for Ethereum competitors and speculators, but also for Ethereum miners. Expand
DeFi Protocols for Loanable Funds: Interest Rates, Liquidity and Market Efficiency
This paper reviews the methodologies used to set interest rates on three prominent DeFi PLFs, namely Compound, Aave and dYdX and investigates the market efficiency and inter-connectedness between multiple protocols, examining whether Uncovered Interest Parity holds within a particular protocol and whether the interest rates for a particular token market show dependence across protocols. Expand
DeFi Pulse: How do we calculate total value locked (TVL)?
  • 2020
Flash Boys 2.0: Frontrunning in Decentralized Exchanges, Miner Extractable Value, and Consensus Instability
This work highlights the large, complex risks created by transaction-ordering dependencies in smart contracts and the ways in which traditional forms of financial-market exploitation are adapting to and penetrating blockchain economies. Expand
GASOL: Gas Analysis and Optimization for Ethereum Smart Contracts
As the gas consumption is often dominated by the instructions that access the storage, Gasol uses the gas analysis to detect under-optimized storage patterns, and includes an (optional) automatic optimization of the selected function. Expand
Revisiting Transactional Statistics of High-scalability Blockchains
Examining recent network traffic of three major high-scalability blockchains---EOSIO, Tezos and XRP Ledger (XRPL)---over a period of seven months reveals that only a small fraction of the transactions are used for value transfer purposes. Expand
Solidity v0.8.0 documentation
  • 2020
Stablecoins 2.0: Economic Foundations and Risk-based Models
This work characterize the unique risks that emerge in non-custodial stablecoins and develop a model framework that unifies existing models from economics and computer science, applicable to a wide array of cryptoeconomic systems, including cross-chain protocols, collateralized lending, and decentralized exchanges. Expand