How Does Network Congestion on a Blockchain like Ethereum Exacerbate Liquidation Cascades in DeFi?

Network congestion can be catastrophic during a liquidation cascade. As prices fall, both borrowers trying to add collateral and liquidators trying to close positions rush to get their transactions processed.

This creates a bidding war for block space, causing gas fees (transaction costs) to skyrocket. Borrowers may be unable to save their positions because their transactions are too slow or expensive.

At the same time, liquidator bots might also fail, leading to a backlog of bad debt and potentially rendering the protocol insolvent.