DeFi liquidations: Volatility and liquidity

Ana Sasi-Brodesky and Iota Kaousar Nassr

No 48, OECD Working Papers on Finance, Insurance and Private Pensions from OECD Publishing

Abstract: This work delves into the liquidations mechanism inherent in Decentralised Finance (DeFi) lending protocols and the connection between liquidations and price volatility in decentralised exchanges (DEXs). The analysis employs transactional data of three of the largest DeFi lending protocols and provides evidence of a positive relation between liquidations and post-liquidations price volatility across the main DEX pools. Without directly observing the behaviour of liquidators, these findings indirectly indicate that liquidators require market liquidity to carry out large liquidations and affect market conditions while doing so.

Keywords: decentralisation; decentralised exchanges; decentralised finance; DeFi; lending protocols; liquidity pools; liquidity providers; tokens (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 O39 (search for similar items in EconPapers)
Date: 2023-07-31
New Economics Papers: this item is included in nep-ban, nep-mst and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:oec:dafaad:48-en

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