Analyze the solutions to the DeFi serial liquidation problems from three dimensions


1. The Optimization of the clearing mechanism

The liquidation mechanism and algorithm are the core capabilities of the lending agreement, which directly determine whether the user’s collateral is liquidated and the specific price of the liquidation, so as to ensure that the platform and the lender will not suffer losses.

2. Improve the efficiency of collateral replenishment

The fundamental reason for the liquidation of collateral lies in the user’s insufficient collateral, but in fact, many users do not have the willingness and ability to replenish the collateral. If most users can obtain timely news of insufficient collateral rate and replenish collateral, then the situation of chain collateral liquidation under extreme market conditions would also be greatly reduced.

3. Refactor DeFi lending logic

At present, most DeFi lending projects adopt an over-collateralization mechanism, which is the basis for the liquidation of collateral under severe market volatility. However, in the past year, the DeFi industry has seen multiple projects based on credit loans/deficient lending mechanisms. It rebuilds the DeFi lending business at the product logic level, and builds the lending business with the trust relationship between users or offline legal relationships as the cornerstone, thereby reducing the market risk caused by liquidation.


The article analyzed the solution to the liquidation problem of serial liquidation from three perspectives. The product logic of the lending market has been optimized from different aspects to reduce the probability of on-chain liquidation. Instadapp, DeFi Saver and other projects with automatic liquidation protection functions have recently improved their TVL rapidly. These explorations and data would help to improve the health of the DeFi lending market and reduce the volatility of the crypto market.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store


A well-known crypto media plantform in China