Liquidation Queue Congestion

Liquidation Queue Congestion occurs when the volume of undercollateralized positions exceeds the capacity of the network or the available arbitrageurs to process liquidations. In high-volatility environments, the number of positions requiring liquidation can spike, causing a bottleneck.

If the blockchain network is also congested, transaction fees rise, making it unprofitable for liquidators to close positions. This delay creates a window where the protocol remains exposed to further price drops without being able to secure its debt.

This effectively turns a manageable market correction into a systemic protocol failure. Protocols attempt to solve this by incentivizing liquidators with bonuses or using batching mechanisms.

Nevertheless, the physical limits of block space remain a significant constraint on liquidation efficiency.