Network Congestion Effects

Network Congestion Effects occur when high demand for blockchain transactions leads to delays and increased costs for users. During these periods, transactions may remain pending for a long time, which can be disastrous for time-sensitive operations like liquidations.

If a liquidation transaction is stuck in the mempool, the collateral value may continue to drop, increasing the loss for the protocol. This risk highlights the importance of transaction fee management and the need for scalable blockchain infrastructure.

Protocols often use gas price estimation and priority fees to ensure that critical transactions are processed in a timely manner. Managing these effects is a major operational challenge for all decentralized financial applications.