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