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In v2 (this protocol), the more a borrowed asset falls in value, the less collateral cTokens are seized per unit of borrow. Due to discrete math, the number of seized tokens will reach zero before the price of the borrowed token reaches zero, meaning the incentive to liquidate will vanish. For a normal range of asset decimals (e.g. 6-18) and prices, this is generally not an issue, as liquidation should occur far before the borrowed asset price reaches the critical value (which depends on decimals of both the borrowed asset and collateral asset being seized). However, care should be taken when listing assets to avoid a potentially dangerous situation.
The text was updated successfully, but these errors were encountered:
In v2 (this protocol), the more a borrowed asset falls in value, the less collateral cTokens are seized per unit of borrow. Due to discrete math, the number of seized tokens will reach zero before the price of the borrowed token reaches zero, meaning the incentive to liquidate will vanish. For a normal range of asset decimals (e.g. 6-18) and prices, this is generally not an issue, as liquidation should occur far before the borrowed asset price reaches the critical value (which depends on decimals of both the borrowed asset and collateral asset being seized). However, care should be taken when listing assets to avoid a potentially dangerous situation.
The text was updated successfully, but these errors were encountered: