Priority gas auctions (PGAs) on liquidations are bad news for borrowers and liquidators alike. The good news is that at @euler_xyz we use a dynamic liquidation discount coupled with an incentive to limit miner extractable value (MEV). What does this mean? 1/13 https://twitter.com/EdgarArout/status/1379808399425175558
Rather than offer a fixed % discount to liquidators, we let the discount increase as a function of how under water a position is. This turns a one-shot opportunity, where liquidators have no option but to engage in a PGA, into a type of Dutch auction. 2/13
And because Euler uses Uniswap’s time-weighted average price (TWAP) oracles (see article), a shock to the price doesn’t bring with it a singular point at which every liquidator becomes profitable all at once. 3/13 https://medium.com/euler-xyz/moving-average-filters-ac8913263d64
Instead the price moves more smoothly over time leading to a continuum of opportunities. 4/13
Each would-be liquidator must decide whether or not to bid for a liquidation at the current discount on offer at this instant in time; you might be profitable at 4%, but I run a more efficient operation and can jump in sooner at 3%. 5/13
This helps the % discount scale more effectively with the going market rate for liquidations (which depends on gas cost) and the size of the opportunity. A $1M liquidation will most likely be processed at a lower % discount than a $1k liquidation. 6/13
If two liquidators jump in to profit on the same block, for the same % discount, then there’s still the potential for a PGA. It would be good if we could choose between liquidators in a way that benefits users of Euler protocol, rather than let the gas price do the talking. 7/13
So we give liquidators that are also lenders on Euler an opportunity to front-run liquidators that have no stake in the protocol. Long-term eToken holders of the liquidated assets get an extra incentive to liquidate. 8/13
This means there should usually be a period where people with the incentive are profitable, but front-running bots aren’t. 9/13
Overall, our solution doesn’t fix MEV and PGA completely, but we think it will massively benefit borrowers on Euler protocol. Things like flash bots still look like a promising bit of tech to help alleviate the problem of MEV. 10/13 https://medium.com/flashbots/frontrunning-the-mev-crisis-40629a613752
Our liquidation flow also helps resolve a problem identified with fixed ‘close factors’ in the Open Zeppelin audits of Aave and Compound - see ‘Counterproductive Incentives’ below - but more on that later. 11/13 https://blog.openzeppelin.com/compound-audit/ 
You might be wondering where you can read more about our approach? For now our white paper remains embargoed whilst we finish off our protocol. But it will be available soon... 12/13
We’re about to have the protocol audited and will start releasing more information in the near future. For now, find us here: 13/13

Discord: https://discord.gg/CdG97VSYGk 
Twitter: @euler_xyz
Telegram: https://t.me/euler_xyz_official
Medium: https://medium.com/euler-xyz 
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