AAVE Liquidation Analysis: Who is at Risk?
Open Analytics - 19. Aave
Introduction
AAVE is a decentralized lending protocol that enables users to lend and borrow various tokens by depositing assets into "liquidity pools" as collaterals. One of the significant issues on lending/borrowing platforms like AAVE is Liquidation.
A liquidation occurs when a borrower's health factor drops below 1 due to insufficient collateral value to cover their loan/debt value. This may happen when the collateral value decreases, or the borrowed debt value increases. The health factor shows the collateral vs loan value ratio. During a liquidation, up to 50% of a borrower's debt is repaid, and the value, along with the liquidation fee, is deducted from the available collateral.
This dashboard aims to examine liquidations on AAVE and investigate which group is more susceptible to being liquidated - whale risk takers or new borrowers.
![db_img](https://res.cloudinary.com/dsr37ut2z/image/upload/f_auto,q_auto/v1677503586/ny3skyq2y617q2mknxdx.png)
Method
The analytic dashboard comprises of two main sections. The first section provides an overview of liquidations on AAVE, allowing users to adjust the desired timeframe for the metrics and charts presented using the "last_period" parameter.
The second section focuses on identifying borrowers who are susceptible to being liquidated, categorizing them into those who borrowed from AAVE and were liquidated, and those who borrowed from AAVE but were not liquidated in the past 30 days. The analysis considers various factors such as the longevity of borrowing experience, the number of borrows, the average volume of borrows, the average AAVE balance, and whether the borrower borrowed from Compound or not.
The analysis compares these factors between the two categories to identify any significant differences. Borrowers with fewer borrows, a higher average AAVE balance, a higher average volume of borrows, and experience with other lending platforms (such as Compound) are considered more experienced, while those with the opposite characteristics are considered less experienced.
Descriptives
The following graphs provide a comprehensive overview of the trends in the number and volume of liquidations, as well as the number of borrowers whose assets were liquidated, sicne the inception of AAVE Borrow.
One notable observation from the data is the peak of liquidations which occurred in May and June 2022. This sharp increase in liquidations can be attributed to the UST depag and the subsequent collapse of Terra.
Furthermore, the graphs illustrate that since the peak in June 2022, there has been a downward trend in the number and volume of liquidations. However, in November 2022, there was a slight increase in the number and volume of liquidations.
In terms of the number of borrowers whose assets were liquidated, the data suggests a consistent decline since June 2022. This trend indicates that fewer borrowers have been affected by liquidations over time.