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AnalysisDF-2026-0370

Liquidation engines assume a book that is not there

Parameters calibrated in liquid conditions produce bad debt in illiquid ones.

$14.2M▲ +22%bad debt, three protocols, Q3

8 minDecentralised Finance

Close factors and bonuses are usually set against historical depth. When depth thins faster than the parameters adjust, liquidators decline to act and the position becomes protocol loss.

Dynamic parameters exist and are used by a minority. The rest rely on governance reacting within hours, which has repeatedly not happened.

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