## 🧀 liquidations

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### 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.

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### 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.

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### 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.


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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)