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Tick-Based Soft Liquidation for Lending Protocols with LP tokens as Collateral: Design and Analysis
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DOI：10.1016/j.bcra.2026.100537.png)
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Abstract
En 中文
This paper presents a novel design for decentralized lending protocols that addresses fundamental limitations of current DeFi platforms, such as rigid liquidation mechanisms and lack of support for complex collateral types like LP tokens. The proposed model introduces a soft liquidation framework inspired by Curve’s LLAMMA and enhanced with a tick-based structure derived from Uniswap v3. This approach enables partial, risk-adjusted liquidations and supports higher loan-to-value (LTV) ratios-up to 85%-without compromising protocol solvency. A robust pricing system, combining TWAP oracles, Chainlink feeds, and Uniswap data, ensures liquidation integrity. Additionally, the protocol includes adaptive risk management mechanisms based on stress functions that assess LP token volatility, impermanent loss, and liquidity shifts. Through mathematical formalization and system-level optimization, the architecture achieves enhanced capital efficiency, improved user protection, and better scalability compared to both traditional hard-liquidation models and overly complex soft-liquidation systems. This positions the protocol as a viable foundation for next-generation decentralized credit markets.
Keywords:
DeFi
Lending protocol
Soft liquidation
LP tokens
Collateral management
Risk-based liquidation
Uniswap v3
Curve LLAMMA
Tick-based architecture
Liquidation engine
Journal
IF:
5.6
Papers:
310
Citations:
754
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Cited Papers