4 ms·

That's why you can only borrow up to 80-ish% of your collateral, and that's getting very risky for the borrower. It also means that the sane lending protocols a

That's why you can only borrow up to 80-ish% of your collateral, and that's getting very risky for the borrower. It also means that the sane lending protocols are somewhat stingy with what they take as collateral and then set the borrowing limits and liquidation thresholds fairly conservatively. When the market starts making big moves downward the liquidation bots have a keen eye on which positions are at risk, watching and predicting the oracle updates, and within a block or 2 (~30 seconds) of a position being vulnerable have the deal all closed out. It can even be all done in a single transaction bundle that calls the liquidation function, pays back the debt, takes the collateral, and sells it on a dex, all in one go. The market price for the collateral would have to drop more then 20% in the span of that 30-seconds for it to not be profitable for the liquidator. That's not to say it's impossible for this to fail, the biggest and sharpest dumps happen during liquidation cascades. But a failure is in the category of 'black swan event', and not something that is seen with regularity.

wizzwizz4 5y ago
> That's not to say it's impossible for this to fail, the biggest and sharpest dumps happen during liquidation cascades. If it happens, it's not a black swan event.
- TomSwirly 5y ago
  This is a wrong use of the term. Black swans are rare but actually exist. https://en.wikipedia.org/wiki/Black_swan_theory https://en.wikipedia.org/wiki/Black_swan_theory
  - wizzwizz4 5y ago
    It's actually a correct use of the term. A “black swan” is something that is believed not to be possible – or, in retrospect, something that was believed impossible but happened anyway. The term predates the discovery of black swans; > However, in 1697, Dutch explorers led by Willem de Vlamingh became the first Europeans to see black swans, in Western Australia.[9] The term subsequently metamorphosed to connote the idea that a perceived impossibility might later be disproven. Taleb notes that in the 19th century, John Stuart Mill used the black swan logical fallacy as a new term to identify falsification.[10]
plorkyeran 5y ago
A "black swan event" is something which was obviously possible in retrospect, but no one could have predicted other than via blind guessing. If you can explain how it'd happen in advance, it's not one.

wizzwizz4 5y ago

> That's not to say it's impossible for this to fail, the biggest and sharpest dumps happen during liquidation cascades. If it happens, it's not a black swan event.

TomSwirly 5y ago
This is a wrong use of the term. Black swans are rare but actually exist. https://en.wikipedia.org/wiki/Black_swan_theory https://en.wikipedia.org/wiki/Black_swan_theory
- wizzwizz4 5y ago
  It's actually a correct use of the term. A “black swan” is something that is believed not to be possible – or, in retrospect, something that was believed impossible but happened anyway. The term predates the discovery of black swans; > However, in 1697, Dutch explorers led by Willem de Vlamingh became the first Europeans to see black swans, in Western Australia.[9] The term subsequently metamorphosed to connote the idea that a perceived impossibility might later be disproven. Taleb notes that in the 19th century, John Stuart Mill used the black swan logical fallacy as a new term to identify falsification.[10]

plorkyeran 5y ago

A "black swan event" is something which was obviously possible in retrospect, but no one could have predicted other than via blind guessing. If you can explain how it'd happen in advance, it's not one.