Tag Page LiquidationEngineering

Why Aave & Compound v3 liquidations grow TVL on L2—analyzing the latest data-driven insights 👇

1️⃣ Empirical proof: v3 liquidation ≠ protocol failure Recent research (“Automated Risk Management Mechanisms…”) shows liquidation events in v3 actually increase TVL and revenue, unlike v2 where liquidations eroded value wehodl.finance 2️⃣ L2 amplifies the effect — better returns, better risk Same study finds the positive correlation between liquidations and TVL is significantly stronger on Arbitrum/L2 than on Ethereum/L1 3️⃣ What v3 changed — tech deep-dive Variable liquidation penalties and thresholds Isolated and efficiency-mode markets (Aave) to fine-tune risk Segregated pools on Compound v3 (Comet) for asset-level safety → Result: cleaner liquidations, less contagion, higher capital efficiency. 4️⃣ Who benefits ~ L1 vs L2 dynamic Retail users on L2: lower gas = tighter liquidation reaction = habit-based yield Institutional/liquid capital on L1: deeper liquidity, cross-chain integrations . → Markets now differentiate by audience type, not just chain layer. 5️⃣ Implication for protocol devs and users Protocols: upgrading to v3 unlocks deeper capital growth, especially on L2 Users: migrating to v3 means safer liquidity & opportunity for yield farming Governance: needs to monitor liquidation models, adapt thresholds dynamically 🧠 TL;DR Aave & Compound v3 upgraded their liquidation systems so well that when positions fail, they stimulate growth—especially on L2. Push to v3 isn’t just feature parity—it’s a risk/return revolution. #Finance #Make Money #crypto #DeFi #L2 #AaveV3 #CompoundV3 #LiquidationEngineering #ProtocolDesign #BlockchainResearch