Liquidation competition during market downturns intensifies systemic risk, as MEV searchers rush to seize undercollateralized assets, accelerating volatility.

Quotes that support claims

In January 2022, that’s exactly what happened. Two cryptocurrencies used as MIM collateral–Wonderland and Wmemo–plunged 86% and 70% in value, respectively. Worsley’s bot immediately went to work.

When a user can’t repay his loans, the protocol typically allows anyone to liquidate the collateral and earn a liquidation fee from the borrower

MEV searchers will compete to determine which borrowers can be liquidated and collect the liquidation fee for themselves

Related topics

Maximal Extractable Value (MEV)