Who Typically Executes the Liquidation Process in a Decentralized System?
Liquidation is typically executed by decentralized participants known as 'keepers' or 'liquidators.' These are bots or individuals who monitor the blockchain for under-collateralized positions. They compete to be the first to execute the liquidation transaction, paying the necessary transaction fees (gas) and receiving a liquidation bonus or penalty fee from the borrower's collateral as a reward for maintaining the system's solvency.
Glossar
Liquidation Bonus
Incentive ⎊ The liquidation bonus serves as the primary economic incentive for decentralized system actors to actively monitor and maintain the solvency of lending and derivatives protocols.
The Liquidation Process
Process ⎊ The liquidation process is the automated, irreversible sequence of events triggered when a leveraged position's collateral value falls below the minimum maintenance margin required by a derivatives or lending protocol.