Lead · Protocol Encyclopedia
When your collateral gets liquidated, it's not just "sold" — whether it's a Dutch auction, a reverse Dutch auction, or a fixed discount directly determines how much less you get back.
Mia Fontaine
·
September 04, 2026
Your health factor drops below 1 and your position gets liquidated — but the word "Liquidation" hides an entire auction mechanism running underneath it, and the specific auction design a protocol chooses directly determines how much you lose this time, and who profits from the gap. DeFi lending protocols mainly handle liquidations through two models: Dutch auctions, where the price starts high...