Folks Finance Liquidations

    Parameters:

    • granularity = The date unit by which the statistics will be aggregated. Default day.
    • timeframe_months = The number of months to the current date to be included in the charts. Default 6.

    The selected parameters apply to all charts. The cumulative amounts are based on the data within the selected timeframe_months period.


    Introduction

    Folks Finance is a capital market protocol built on the Algorand blockchain. By depositing collateral on the platform, users can borrow other assets up to a specific Loan To Value (LTV) ratio. When market actions move the LTV below the safety threshold, other users can act as liquidators and liquidate the loan position in part or completely.

    In this dashboard we will have a closer look at the liquidated positions on Folks Finance and try to better understand the liquidations that have happened so far.


    Results

    Below we can see the number of liquidations of each collateral asset over time, as well as the cumulative amount for the selected timeframe_months parameter.

    The whole of 2022 has been marked so far by a wider market downturn that inevitably put a lot of collateral at risk of liquidation. Folks Finance however has only been around on the market for a few months, with the first liquidations being executed in early April. Since then we can see the number of liquidations consistently ramping up over time, culminating on May 26, shortly after the UST/LUNA crash that sent ripples across blockchains and crypto markets.

    The Algorand blockchain uses ALGO as its native token, which also makes it the most abundant asset of the DeFi ecosystem on the network. This is also reflected by the fact that over 78% of all liquidations were made on ALGO collateral.

    Although more liquidations were executed to the end of May, we can see the highest liquidation volume earlier in the month, right as the UST/LUNA situation was unfolding. Considering the short lifespan of the protocol at that time, it is notable that they were able to handle the large volume and ensure Folks Finance stays a healthy protocol.

    One other thing standing out in contrast to the liquidations count is the collateral being liquidated in the largest amount is g(overnance)ALGO. Although the point of the token is precisely to enable DeFi participation while having governance rights, the large amounts lost in liquidations might make people choose just one of the options in the future and better contain their risks.

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    While the borrower might not be particularly happy about such an event, liquidators have an incentive to liquidate loan positions and to turn a profit from the collateral assets. It’s the cycle of finance and it keeps DeFi healthy.

    The profitability of each asset closely follows the volume we’ve seen in previous charts, with gALGO making an average profit close to 284 USD per liquidation over the observed period.

    Although many more liquidations were made since the very active period in mid May, volumes were very low and liquidators were quicker to seize the opportunity, which in turn means lower profits. As we can expect, the best time for a liquidator is when markets are going down fast, which they haven’t been doing lately.

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    The most surprising thing however might be that there are only 4 addresses that have ever executed a liquidation, with the largest of them by far being the Community Liquidator.

    • Community Liquidator Address: EKHIMQJGZABULP552FKGYHDNMTQGIM3QWB6CKHTW6M2TQFKV427UARQBBM

    Over time it executed 301 liquidations, making a profit of just under 19k USD for the Community Treasury. While it is proof that the Folks Finance team is able to keep the protocol healthy, it is important for the activity to become more distributed. This is also acknowledged by the FF team, which encourages the community to build their own liquidation bot starting with the running example available on their GitHub Repository.

    Almost every one of the four addresses were able to liquidate a large-ish loan position, skewing the averages of their activity. For this situation however, we can use the median value of liquidations and profits to better understand what their regular activity looks like.

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    Summary

    • May has been the most active period for liquidators, with the daily liquidations count culminating close to the end of the month. Most of liquidations were made on loan positions with ALGO as collateral.
    • The most liquidation volume however was made on positions having gALGO as collateral. This might be disadvantageous towards the main idea of the asset, being able to participate in governance and DeFi at the same time.
    • The largest average liquidations were made generally on gALGO collateral, with the other end of the spectrum having the USDt stablecoin, which is naturally a lot less exposed to liquidations during market downturns.
    • Only 4 addresses have ever made any liquidations, the most active and successful being the Folks Finance Community liquidator, adding funds to the Community Treasury.
    • Although many of the liquidations have had only a small profit and some were even made at a slight loss, liquidators were able to execute large liquidations as well and accumulated a reasonable amount of profit over the observed time frame.

    Methodology

    When a user (or most often a bot) finds a position that can be liquidated, an application call is made to the app_id of the collateral asset pool containing a base64 encoded note of ’l’. We will be using these calls to find liquidation transaction groups.

    The liquidator then repays the loaned amount to the address of the borrowed asset pool. In return, he is then sent the collateral assets from the liquidated user loan account in the for of fTokens which can then be redeemed in equal amount for the associated asset. Because all loan positions are over-collateralized, it almost always results in a net profit for the liquidator.

    An fToken is the tokenised representation of a deposited asset on Folks Finance which users can use as collateral to borrow other assets or to withdraw the deposited amounts. In this system, ALGO becomes fALGO, USDC becomes fUSDC and so on.

    The fToken amounts received by liquidators will be replaced with the underlying asset id and converted to their USD value at the time of the transaction using the flipside_prod_db.algorand.prices_swap table. This way we can get all liquidations to a common denominator and compare this activity across all assets.

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