One last question on liquidations for this week: what actually causes bad debt?
(ignoring operational issues like configs, bad oracles, sloppy risk mgmt, etc)
Is it:
a) lots of small positions uniformly spread
b) clusters of positions liquidating at once
c) one giant position of free falling collateral?
Remember Solend’s whale or CRV on Aave?
I dread more liquidating a big concentrated position on a falling knife collateral than many small ones.
You have to prepare to liquidate thousands and thousands of positions, and that’s a good stress test for the entire infra (swap provider, RPCs, cloud, monitoring) but in reality you will have a few big chunky ones causing trouble.
The implication of this, which goes against the current narrative slop, is that you have to be able to sell a lot and fast in a market w no buyers, and that is not done with low static fees and disincentivised liquidators.
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