Liquidations

When the price of the collateral reaches a certain threshold, the protocol has to liquidate the position. Stable Unit uses an innovative liquidation system where liquidators are selected deterministically and they can liquidate positions with the most optimal stablecoin pair, this is what we call asynchronous MEV-resistant liquidations.

Liquidation in a lending protocol is a process that is triggered when a borrower's collateral falls below a certain value, known as the liquidation threshold. When a liquidation is triggered, the lender has to take the collateral and sell it in order to repay the loan.

The purpose of liquidation is to protect the protocol from the risk of bad debt. If the value of the collateral falls below the liquidation ratio, it is likely that the borrower will be unable to repay the loan, so the lender can sell the collateral in order to recover as much of the loan as possible. This helps to reduce the overall risk for the lender, and ensures that they are able to recover their investment if the borrower is unable to repay the loan.

Stable Unit’s liquidation system is an evolution of Aave’s, which is considered the leader in the market. The protocol uses an asynchronous fixed-spread MEV-resistant liquidation system that selects liquidators through a deterministic manner and removes any competitive aspect to liquidations.

With the absence of competition, liquidators are able to avoid spending huge amounts for gas/MEV bribes and the protocol is also able to generate a profit as it doesn’t need to offer discounts as big as Aave to incentivize liquidations.