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> So the risk is limited as long as the loans can be liquidated in time in case of a price crash. If I may guess, it seems unlikely there are too many folks in
by beefield 5y ago
> So the risk is limited as long as the loans can be liquidated in time in case of a price crash.
If I may guess, it seems unlikely there are too many folks in DeFi circles who have ever heard acronym LTCM.
(TL;DR: A bunch of actual Nobel laureates (no kidding, or at least as much as Nobel price in economics is an actual Nobel) founded a huge and famous hedge fund with a trading strategy assuming they can liquidate their position at market prices. At this point you may guess that it ended tits up and was kind of a mess. Time will tell if DeFi folks were smarter than that.)
- Ekaros 5y agoIt really sounds like fun and games until it all comes crashing down... Then again if it's all crypto and everything goes down at once, I suppose there isn't too big issue. Apart from losing some fiat, but they who cares about that in cryptoworld...
- xur17 5y agoCollateral is sold off automatically once they breach some threshold (varies, but it's always > 100%), and there are bots that compete to do this as quickly as possible. This is in no means perfect, but it is quite responsive, and did survive crypto's March 2020 price crash.
- yokem55 5y agoThere were some denial of service issues that on Ethereum during the March 2020 crash that caused Maker DAO to have some Zero bid liquidations and the protocol had to mint and sell off some of Maker's token to keep all the issued DAI properly backed. This did not happen again in the crash in May, which was nearly as steep, but the protocols all kept functioning as expected.