Edge Cases in Liquidation:

Understanding Slippage Scenarios

In some instances, traders may face slippage during liquidation events. Below are examples illustrating how different sizes of liquidation can lead to varying slippage:

Scenario 1: Small Liquidation

• Trader's Margin: $101,000 of tBTC, with $100,000 debt.

• Steps:

  • Flash borrow $100,000 USDC from Aave.

  • Convert $100,000 USDC to USDx using Synthetix Spot Market.

  • Burn $100,000 of USDx debt.

  • Withdraw $101,000 of tBTC collateral.

  • Swap $101,000 of tBTC for $100,000 USDC.

  • Repay Aave flash loan.

  • Result: Approximately 1% slippage on the tBTC/USDC swap.

Scenario 2: Large Liquidation

• Trader's Margin: $3.3 million of tBTC, with $3 million debt.

• Steps:

  • Flash borrow $3 million USDC from Aave.

  • Convert $3 million USDC to USDx using Synthetix Spot Market.

  • Burn $3 million of USDx debt.

  • Withdraw $3.3 million of tBTC collateral.

  • Swap $3.3 million of tBTC for $3 million USDC.

  • Repay Aave flash loan.

  • Result: Approximately 10% slippage on the tBTC/USDC swap.

These examples illustrate how slippage can vary significantly with the size of the liquidation, influencing the efficiency of debt repayment and collateral recovery.