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## 🧀 liquidations
## liquidations
<br>
### tl, dr
* Lending protocol (e.g. Aave or Maker) liquidations present a well-known MEV opportunity.
* They work by requiring users to deposit some collateral. Users can then borrow different assets and toekns from others depending on what they need, up to a certain amount of their deposited collateral.
* As the value of a borrower's collateral fluctuates, if the value of the borrowed assets exceeds the value of the collateral, the protcol allows anyone to liquidate the collateral (similar to margin calls in traditional finance).
* If liquidated, the borrower usually has to pay a hefty liquidation fee, some of which goes to the liquidator (where the MEV opportunity comes in).
* Searchers compete to parse blockchain data as fast as possible to determine which borrowers can be liquidated and be the first to submit a liquidation transaction and collect the liquidation fee.
<br>
### strategy 1
* A detects a liquidation opportuniy at block B (after the execution of B). Then, A issues a liquidation transaction T, which is expected to be mined in the next block, B+1.
* A attempts to destructively front-run other competing liquidators by setting high transactions fees for their liquidation transaction T.
<br>
### strategy 2
* A observes a transaction T, which will create a liquidation opportunity (e.g., an oracle price update transaction which will render a collaterized debit liquidatable). A then back-runs T with a liquidation transaction Ti to avoid the transation fee bidding competition.
* lending protocol (e.g. aave or maker) liquidations present a well-known MEV opportunity. they work by requiring users to deposit some collateral. users can then borrow different assets and tokens from others depending on what they need, up to a certain amount of their deposited collateral.
* as the value of a borrower's collateral fluctuates, if the value of the borrowed assets exceeds the value of the collateral, the protcol allows anyone to liquidate the collateral (similar to margin calls in traditional finance).
* searchers compete to parse blockchain data as fast as possible to determine which borrowers can be liquidated and be the first to submit a liquidation transaction and collect the liquidation fee.
* example of strategy: bot detects a liquidation opportuniy at a block and issues a liquidation tx, which is expected to be include in the next block. to compete with other liquidators, the bot sets high tx fees for their liquidation tx.
* another strategy: bot observes a tx which will create a liquidation opportunity (e.g., an oracle price update tx rendering a collaterized debit to be liquidated), then backruns this tx with a liquidation tx to avoid the fee bidding competition.
<br>
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## resources
* [liquidations by aave protocol](https://docs.aave.com/developers/guides/liquidations)
* [liquidation dashboard by eigenphi](https://eigenphi.io/mev/ethereum/liquidation)
* [understanding compound's liquidation](https://zengo.com/understanding-compounds-liquidation/)
* [forbes on nahtan worsley's liquidation strategies](https://www.forbes.com/sites/jeffkauflin/2022/10/11/the-secretive-world-of-mev-where-crypto-bots-scalp-investors-for-big-profits/?sh=25489eda2d8d)
* [liquidations, by aave protocol](https://docs.aave.com/developers/guides/liquidations)
* [liquidation dashboard, by eigenphi](https://eigenphi.io/mev/ethereum/liquidation)
* [understanding compound's liquidation, by zengo](https://zengo.com/understanding-compounds-liquidation/)
* [nahtan worsley's liquidation strategies, by forbes](https://www.forbes.com/sites/jeffkauflin/2022/10/11/the-secretive-world-of-mev-where-crypto-bots-scalp-investors-for-big-profits/?sh=25489eda2d8d)