A significant $2 million liquidation event on August 5, 2024, during a Bitcoin price drop from $62,000 to $49,000, underscores the critical issue of oracle latency in DeFi protocols. Unlike common assumptions, these liquidations were not primarily due to overleveraged positions but rather the slow update cycles of traditional oracles, which typically refresh every 30 to 60 seconds. This delay allows liquidation bots to exploit real-time price discrepancies, leading to premature liquidations before users can react.
The problem is exacerbated during market crashes, as seen on December 9, 2024, when $1.7 billion was liquidated in 24 hours. The latency gap has reportedly cost over $2 billion to MEV bots. However, solutions like Stork's sub-second pull oracles offer a way forward, providing real-time updates and eliminating the information asymmetry that currently benefits bots. As DeFi infrastructure evolves, the adoption of such technologies could prevent unnecessary liquidations and ensure fairer market conditions.
DeFi Liquidations Highlight Oracle Latency Issues
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