Bankless Hasu & Hart on Oval & The Recapturing of Billions in DeFi Liquidations
Feb 13, 2024
In this insightful discussion, Hasu, Strategy Lead at Flashbots, and Hart Lambur, Founder and CEO of UMA, dive deep into Oval, an innovative DeFi primitive aimed at revolutionizing liquidations. They address the inefficiencies in liquidation pricing that have cost billions and explore how maximally extractable value (MEV) can benefit users rather than just bots. The conversation also sheds light on auction mechanisms, decentralized finance's future, and the critical balance between efficiency and sustainability in DeFi.
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Oracle Updates and MEV
- Oracle price updates, like Chainlink, trigger liquidations in DeFi protocols like Aave and Compound.
- These liquidations create MEV opportunities similar to unprotected Uniswap trades.
Liquidation Discounts and MEV Losses
- Aave and Compound sell collateral at a 5-10% discount during liquidations to ensure protocol health.
- This discount has resulted in an estimated $150 million loss to MEV in the last two years for Aave and Compound V2/V3.
Balancing Lender and Borrower Interests
- Lending markets sell collateral at a discount to avoid bad debt, prioritizing lender safety.
- This approach contrasts with MakerDAO's borrower-friendly approach, which uses delayed oracle updates and auctions.