Liquidation Mechanism Bypass

Definition ∞ Liquidation mechanism bypass refers to a scenario where a lending protocol’s automated liquidation process fails to activate or is circumvented. This can result from oracle manipulation, network congestion, or specific smart contract vulnerabilities. A successful bypass allows borrowers to avoid collateral seizure despite falling below required collateralization ratios. Such an event can cause significant losses for lenders and destabilize the protocol.
Context ∞ News reports on liquidation mechanism bypasses often surface after major security incidents or market dislocations in decentralized finance. The industry continually works to harden these mechanisms against exploits and external interference. The integrity of liquidation processes is essential for maintaining protocol solvency.