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DeFi liquidations: Volatility and liquidity

Author

Listed:
  • Ana Sasi-Brodesky
  • Iota Kaousar Nassr

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.

Suggested Citation

  • Ana Sasi-Brodesky & Iota Kaousar Nassr, 2023. "DeFi liquidations: Volatility and liquidity," OECD Working Papers on Finance, Insurance and Private Pensions 48, OECD Publishing.
    • Handle: RePEc:oec:dafaad:48-en
    DOI: 10.1787/0524faaf-en
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    More about this item

    Keywords

    decentralisation; decentralised exchanges; decentralised finance; DeFi; lending protocols; liquidity pools; liquidity providers; tokens;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O39 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Other

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