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Some Aave loans sit near liquidation with collateral that can take hours to cash out

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Some Aave loans sit near liquidation with collateral that can take hours to cash out

Some Aave loans backed by yield-bearing collateral had narrow liquidation buffers in LlamaRisk’s Oct. 9 snapshots. Every top PT-AUSD supplier on Monad carried debt, while two syrupUSDC positions accounted for about 97% of supplied syrupUSDC on Arc. Cashing out the collateral involves a market sale or, for Arc holders choosing Ethereum redemption, a withdrawal queue that can take hours.

The two markets present separate versions of the same cash-flow problem. If a borrower becomes eligible for liquidation, a liquidator supplies the borrowed stablecoin, receives collateral and then recovers cash from it. December PT-AUSD requires a sale before maturity. Arc syrupUSDC offers a local sale or a bridge to Ethereum for redemption. An oracle valuation establishes collateral value within Aave; the exit determines what the liquidator can recover.

The Oct. 9 reviews of Monad and Arc recommend larger caps, making the economics of those exits consequential as borrowers seek room to grow.

Aave’s health factor compares collateral value, adjusted for liquidation thresholds, with debt. A position becomes eligible for liquidation below 1. The top Monad PT suppliers had health factors between 1.01 and 1.18, with a median of 1.03, in the Oct. 9 snapshot. USDC was their dominant debt asset, followed by USDT0.

Those readings leave a narrow valuation cushion for part of the cohort. They also reflect why borrowers pair correlated collateral and debt: smaller relative price changes can support higher leverage. Aave notes that lower health factors may be appropriate for correlated assets.

During liquidation, someone repays the borrower’s debt and receives collateral plus an incentive.


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