Liquidation in Crypto: Everything You Wanted to Know about ItÂ
Keeping a balance is a crucial element in lending and borrowing systems in the volatile and ever-changing realm of cryptocurrencies, and liquidation is a necessary mechanism that allows that. Although it may have a bad reputation among some members of the crypto community, protocols would not be able to ensure secure and continuous operation without it.
Liquidation helps lending protocols remain robust by eliminating dangerous loans, thus avoiding the damaging influence of such loans on asset prices and the overall state of DeFi if they expire due to collateral losing its value.
By enabling crypto owners to utilize their assets as collateral for loans, lending platforms allow them to get access and take advantage of crypto assets that have been unattainable for them otherwise. Furthermore, by preferring to work with collateral exceeding loans, such platforms are able to minimize the chances of under-collateralization as much as possible, which is risky for both parties (borrowers and lenders).
Read the full post on the Kinetex blog to learn more about liquidation, how it works, and how it affects the DeFi space.
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