Liquidations are essential to maintaining the health of perps and lending protocols, yet current systems are often slow, fragmented, and costly. AMM slippage, off‑chain RFQ delays, and MEV leakage reduce recovery rates, while fragmented liquidity can increase the risk of cascading liquidations.
BoltLiquidity introduces a new approach to liquidations, delivering zero slippage, atomic execution that eliminates partial fills, minimizes market impact, and provides predictable execution for liquidators.
Below, Max from the Bolt Foundation takes a deeper dive into how Bolt can be a valuable piece of the liquidation process for perpetuals and lending protocols.
Why Liquidations Are Costly
Slippage on AMMs
- Large liquidations can move the price against the liquidator, creating slippage as the pool becomes unbalanced.
- Example: Selling $100K of ATOM into a shallow AMM pool could incur 2-3% slippage ($2K–$3K loss).
Gas and Execution Costs
- Liquidations often require multiple transactions (repay, seize collateral, sell collateral).
- RFQs can add latency as quotes are requested off‑chain, and if conditions change before execution, liquidators may need to resubmit, wasting gas or missing optimal pricing.
- Bots competing for liquidations bid up gas costs in congested markets.
Arbitrage and MEV Leakage
- Poorly routed liquidations create profitable opportunities for MEV bots, which extract value from the protocol.
- RFQ reliance increases MEV risk because the price path is exposed off‑chain before execution, giving external actors more time to exploit.
- Example: Sandwich attacks or back‑running that skim the recovered value.
How Fragmentation Impacts Liquidations
Scattered Liquidity Across Venues
- Collateral may need to be sold across several DEXs, CEXs, or bridges to find enough depth. This delays execution and can worsen slippage if liquidators execute sequentially.
- RFQs add to fragmentation since each venue must return a separate quote off‑chain, often creating gaps between quote acceptance and execution.
Partial Fills Increase Risk
- A liquidation that can’t be completed in one shot leaves the protocol partially exposed to further price drops.
- RFQs can be prone to partial fills if the liquidity provider reduces size or pulls quotes due to volatility, leaving liquidators scrambling to fill the rest on-chain.
Why Current Liquidations Can Be Slow
Off‑Chain RFQ Delays
- RFQ systems rely on market makers to receive and respond to quote requests off‑chain. This introduces a waiting period between when a liquidation opportunity arises and when a trade can actually execute.
Multi‑Step Execution
- Liquidations often require separate on‑chain transactions to seize collateral, request quotes, execute swaps, and repay debt. Each step adds latency and creates windows where market prices can move against the liquidator.
Quote Expiration & Re‑Submission
- In volatile conditions, RFQ quotes can expire before execution.
- Liquidators may need to re‑request quotes, delaying liquidation and increasing the risk of loss.
Net Effect
- Lower Recovery Rates: Protocols recover less value per liquidation.
- Higher Systemic Risk: Delays and partial fills can trigger cascading liquidations in volatile markets.
- Increased Execution Costs: Multi‑transaction flows, repeated RFQ submissions, and gas bidding wars during market stress make liquidations expensive.
- Greater Dependence on Off‑Chain Actors: Protocols rely heavily on competitive liquidator bots and RFQ market makers. Off‑chain latency and quote uncertainty introduce reliability risks during market volatility.
How Bolt Solves This
Reduces Costs by Eliminating Slippage and MEV Extraction
- How: Bolt sources pricing from the most liquid centralized exchanges and executes swaps at a single, deterministic price with zero slippage. Execution is fully on‑chain and atomic, meaning the entire liquidation clears in one transaction.
- Impact for Liquidations: Protocols capture nearly the full value of collateral, even for large liquidations. Because swaps execute deterministically on‑chain, MEV risk is minimized as there’s no exposed price path for front‑running or sandwich attacks.
- RFQ Comparison: No need to wait for off‑chain quotes or risk price drift or MEV exposure before execution. Bolt’s on‑chain pricing is instant and verifiable eliminating the opportunity for MEV extraction.
Reduces Fragmentation and Latency
- How: Bolt provides the liquidity needed on‑chain, so liquidators interact with one contract instead of dealing with multiple DEXs, RFQs, or bridges.
- Impact for Liquidations: Bolt's atomic executions ensure liquidations can be executed in one shot, preventing partial fills or cascading failures.
- RFQ Comparison: RFQs rely on off‑chain quote requests from market makers, which introduces some latency before execution. Quotes can expire or change in volatile conditions requiring re‑submission or creating partial fills. Bolt executes atomically and immediately on‑chain, avoiding multi‑step flows and minimizing the risk of delays.
Avoids Cascading Liquidations:
- How: Traditional liquidations can drain a pool or clear the order-book, moving the price against the liquidator and potentially trigger cascading liquidations as the pool balance and order-book depth directly determines price. Bolt avoids this by sourcing deterministic prices from highly liquid CEXs rather than relying on-chain liquidity to determine market price avoiding large on‑chain price swings during liquidations.
- Impact on Liquidators: Liquidators get predictable execution without worrying about slippage or triggering further liquidations. Full liquidations can be completed in one transaction without fragmenting trades across pools. Higher certainty of profit since recovered value is maximized and MEV risks are reduced.
- RFQ Comparison: RFQs are off‑chain and time‑sensitive. Quotes can expire or shrink if the market moves before execution, leading to partial fills or failed liquidations.
Conclusion
Efficient liquidations are key for supporting healthy perps and lending protocols, yet traditional approaches introduce problems related to slippage, latency, fragmentation, and MEV risk.
Bolt Liquidity provides a unique, on‑chain alternative executing liquidations atomically, at deterministic zero‑slippage prices, and without exposure to off‑chain delays or market manipulation.
By reducing costs, eliminating partial fills, and preventing cascading liquidations, Bolt not only improves protocol stability but also delivers predictable, reliable outcomes for liquidators. As DeFi continues to mature, solutions like Bolt will be key to securing the next iteration of scalable, capital‑efficient lending and derivatives platforms.
Stay up to date with BoltLiquidity by following on X or joining our updates channel on Telegram.
— Max McKendry, aka CryptoChem000
Interested in integrating Bolt into your dApp? Schedule a Bolt intro call here.
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