Borrowers Carry the Risk in DeFi Lending

[cryptoenthusiast]

While Aave V3 protected lenders from bad debt, the study noted that this approach shifts risk onto borrowers. When collateral values fall, positions can be liquidated quickly, often resulting in losses for borrowers due to fees and missed recovery opportunities.

The research found that borrower losses during liquidation events could range from 10% to 30%, depending on market conditions. This reflects a tradeoff in DeFi systems, where automated safeguards reduce systemic risk but expose individual users to sudden financial impacts.

[lingriiddd]

can’t default if you liquidate people fast enough