What Is the Role of “Keepers” or Liquidator Bots in the DeFi Ecosystem?
Keepers, or liquidator bots, are automated scripts that constantly monitor DeFi protocols for specific on-chain conditions that require an action to be taken. Their most critical role is in liquidations.
These bots monitor loan collateralization ratios on lending platforms. As soon as a loan becomes undercollateralized, a keeper bot will execute a transaction to repay the debt and claim the discounted collateral.
They are essential for maintaining the solvency of DeFi protocols, acting as the decentralized enforcement mechanism that ensures bad debt is removed from the system.
Glossar
Automated Scripts
Execution ⎊ Automated scripts, within cryptocurrency, options, and derivatives trading, represent pre-programmed sets of instructions designed to initiate and manage trades based on defined parameters.
Collateralization Ratios
Coverage ⎊ Collateralization ratios, within cryptocurrency derivatives, options trading, and broader financial derivatives, represent a crucial risk management metric quantifying the extent to which an asset's value exceeds the outstanding obligations secured by it.
Liquidator Bots
Algorithm ⎊ Liquidator bots are sophisticated, automated algorithms programmed to continuously scan decentralized lending platforms for loans whose collateral ratio has dropped below the critical liquidation threshold.
Keeper Networks
Network ⎊ Keeper Networks are decentralized, incentivized systems composed of autonomous or semi-autonomous agents responsible for executing routine maintenance and state-changing functions for smart contracts on a blockchain.
DeFi Protocols
Function ⎊ DeFi protocols, or Decentralized Finance protocols, are autonomous applications built on blockchain technology that replicate traditional financial services without intermediaries.
Decentralized Enforcement Mechanism
Mechanism ⎊ The decentralized enforcement mechanism, within the context of cryptocurrency derivatives and options trading, represents a paradigm shift from traditional, centralized clearinghouses.