Fixing Toxic Liquidation Spirals in Defi

Too Long; Didn’t Read

AAVE v2, a lending platform on Ethereum, incurred bad debt resulting from a major liquidation event involving a single user who had borrowed close to $40M worth of CRV tokens. AAVE withstood the exploit, and the hacker was left with nearly $10m in losses. But, the protocol was left. with almost $2m in bad debt –  debt that cannot be recovered.