DeFi liquidations

Volatility and liquidity

This work delves into the liquidations mechanism inherent in Decentralised Finance (DeFi) lending protocols and the connection between liquidations and price volatility in decentralised exchanges (DEXs). The analysis employs transactional data of three of the largest DeFi lending protocols and provides evidence of a positive relation between liquidations and post-liquidations price volatility across the main DEX pools. Without directly observing the behaviour of liquidators, these findings indirectly indicate that liquidators require market liquidity to carry out large liquidations and affect market conditions while doing so.

Available from July 31, 2023

In series:OECD Working Papers on Finance, Insurance and Private Pensionsview more titles