Liquidations serve a vital purpose in DeFi by keeping the ecosystem healthy and solvent, yet in the name of financial health take many users as collateral damage in the process. For example, one day someone may have a healthy collateral ratio while they farm stables but the next morning they wake up to discover that the market is down 30% and find themselves past the point of no return. Currently, the standard of handling liquidations is done by liquidator bots that clean up underwater positions. Although the process of liquidating users is relatively mature, it is not common practice yet to protect users from such liquidations.
Aave recognizes the importance of safeguarding their users who collectively have over $13 billion Total Value Locked on the platform. That is why yesterday the Aave Grants DAO endowed Gelato with $50,000 worth of AAVE tokens, to build just that in the form of Automated Health Factor Maintenance. Through a series of smart contracts that provide a trustless interface between Gelato, Aave, and Quickswap/Paraswap, how Automated Health Factor Maintenance will work is that Gelato bots will run software that constantly monitors participating Aave users’ Health Factors. If a user’s Health Factor drops below their defined minimum threshold, then Gelato bots will spring into action, sending part of the user’s collateral to ParaSwap (or QuickSwap), in order to repay their debt and restore their Health Factor to a comfortable position. This mechanism will be implemented in a trustless manner so that the bots can only execute this rebalance as per the user’s specification. The bots will receive a small reward for their services paid from the debt position of the user they protected.
Gelato already has experience saving positions from costly liquidations on InstaDapp. In February, InstaDapp Actions was announced which leverages Gelato’s bot infrastructure to automate their automated Debt Bridge. In this use case, Gelato bots automatically refinance InstaDapp ETH-A users’ debt from MakerDAO to Aave during ETH price dumps in order to utilize the lower collateral requirements on Aave. At best this avoids costly liquidations for users, and at worst this buys the users some more time to adjust their positions on Aave, should the price dump far enough to also reach their liquidation threshold there. This feature already attracted approx. $200 Million worth of InstaDapp users’ ETH-A collateral, which now is being protected day and night, thanks to Gelato Network.
Now is the time for all Aave users to have a new solution out there that protects them from costly liquidations at all times — on auto-pilot: In the words of Gelato Legendary Member Luis (@gitpusha):
“Gelato Summer is coming and the days spent sweating over my Health Factor on Aave during these volatile times are counted. With Automated Health Factor Maintenance you can let out your inner degen without the constant fear of getting rekt when you’re not online. Our goal here is that this summer Aave users, myself included, can spend more time out in the sun. This meme sums it up pretty well:”
We would like to thank Aave and the Aave Grants DAO again for their support. We are excited to get this live and will keep the community updated on our progress!
Gelato Network is a protocol that automates smart contract executions on Ethereum and beyond. We are building the underlying infrastructure enabling reliable automation on top of Ethereum and with it a key part of the Web3 middleware stack, enabling trustless, automated flows of value between all smart contracts and upcoming Layer 2 networks.
Connect with us: