Congestion-Driven Liquidation Risk

Congestion-driven liquidation risk is the danger that a trader's position will be liquidated due to the inability to deposit additional margin or close the position during periods of high network congestion. When a blockchain is congested, transaction fees spike and processing times increase, making it difficult to interact with smart contracts in a timely manner.

If a trader's position approaches the liquidation threshold, they may be unable to perform the necessary actions to avoid liquidation because their transactions are stuck in the mempool. This risk is inherent in protocols that rely on a single, congested network for all financial operations.

It highlights the importance of robust infrastructure and the need for mechanisms that prioritize critical liquidation transactions during periods of stress.