Do Decentralized Exchanges (DEXs) Handle Liquidations Differently than Centralized Exchanges (CEXs)?

Yes, the process is fundamentally different. On a CEX, the exchange itself acts as the liquidator, taking over and closing the position, often using an internal insurance fund.

On a DEX, the liquidation process is decentralized and permissionless. It is governed by a smart contract that allows any third-party user (a "liquidator bot") to identify an undercollateralized position, repay the debt on behalf of the borrower, and claim the collateral at a discount as a reward.

The process is more transparent but can be more chaotic and prone to issues like network congestion.