On-Chain Liquidation Bots

On-chain liquidation bots are autonomous software agents that monitor smart contracts for under-collateralized positions. When a position falls below the required threshold, the bot executes a transaction to liquidate the position and collect a reward, often a percentage of the collateral.

These bots play a critical role in maintaining the health and solvency of decentralized lending protocols. However, they also contribute to market volatility, as they act in concert to sell assets when price thresholds are triggered.

The competition between these bots for liquidation opportunities is a high-speed game of latency and gas optimization. They are a primary example of how protocol physics dictates market outcomes in the DeFi ecosystem.