Will I actually get liquidated in AAVE?

Because of high gas prices, positions that could be liquidated are sometimes not, as the expense to do so would not cover the return for doing so. Is there a safe zone for where liquidation happens? How is this related to gas prices?

First of all, we will analyze the relation between Ethereum network gas prices and liquidations on AAVE. If we take a look at the Watson Fu published chart (shown below), we can see that there is a correlation between the number of AAVE liquidations and the Ethereum gas price. If gas price increases, the number of AAVE liquidations decreases dramatically, it is because it is not fair to pay such a huge amount in gas fees for those who want to be liquidated.

https://medium.com/gauntlet-networks/aave-protocol-liquidation-retrospective-may-2021-67c655fc1b31

We need to go further to analyze it and avoid the situation to get or not someone liquidated. Using Flipside Crypto analytics and data and some piece of code in Python, we have obtained these fantastic charts that give us some idea about the threshold or the main features to obtain a safe zone where liquidations happen. To observe that, we take three different charts that show the relationship between the asset moved and the debt ratio. The 2 first charts, show debt ratios under 30000 versus the asset. However, we need to filter the data in order to obtain accurate results and predict which is a possible threshold to be liquidated. For this reason, the last chart shows the same data but filtering the debt bucket ratio scenarios with equal or over 70%. In this case, we can see that the chart shows similar results, demonstrating that major previous liquidations were been done in debt bucket ratio scenarios over 70%. Then, we need to get a similar ratio to stay in the safe zone!

If we take a look at this chart, we can see a stabilized zone where liquidations tend to happen. So here it is, in the table on Flipside we can filter it to obtain more approximate data.

Example of data obtained in Flipside analytics
Example of data used in Python code

Hope you enjoy the content and for some questions, doubts, or ideas, please leave a comment here!

Author: Adrià Parcerisas

Discord: adriaparcerisas#5642

Notion: adriaparcerisas

Ph.D. ML and AI | Blockchain Technology and Cryptocurrency Expert