A defect in the automated process designed to sell collateral when a loan’s value falls below a predetermined threshold. Such a flaw can result in inefficient liquidations, cascading market effects, or the inability to recover loan principal, causing significant losses for protocols and users.
Context
Liquidation mechanism flaws pose substantial risks to decentralized finance lending platforms. Events like network congestion or oracle manipulation can expose these weaknesses, leading to significant financial instability and a loss of confidence in the protocol’s design.
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