Liquidation Services

YieldFi runs Liquidation Services to make vault tokens safely usable across DeFi markets—especially for lending and borrowing use cases. When yield-bearing vault tokens are accepted as collateral on protocols like Aave (including V4-style deployments as they roll out), Morpho, Euler, Silo, and similar markets, the health of the lending market depends on one thing: positions at risk must be liquidated quickly and reliably. Relying solely on secondary DEX liquidity for vault tokens is often inefficient, because deep pools typically require continuous, expensive liquidity incentives and can still fail under stress.

YieldFi’s approach is to provide specialized liquidation execution as an alternative to subsidized DEX depth. Liquidation bots monitor supported lending markets for accounts approaching liquidation thresholds. When a position becomes liquidatable, the liquidation service steps in to purchase the collateral (vault tokens) and repay the borrower’s debt—restoring the market’s solvency. The acquired vault tokens are then redeemed through the vault’s redemption rails, converting them back into the underlying assets. This makes liquidation more predictable because it ties liquidity to the vault’s redeemability and operational SLAs rather than relying on volatile DEX pool depth.

Liquidation SLAs are targeted to support liquidating up to 10% of a vault’s TVL at any time (subject to venue limits and vault-specific constraints). Capacity is actively managed and continuously rebalanced. For example, if the liquidation bot executes a $1M liquidation on a Morpho market, it will promptly redeem the acquired collateral and recycle proceeds to top up its available capital, ensuring the next liquidation can be executed on time. This loop keeps lending markets healthy, reduces the need for mercenary liquidity mining, and enables vault tokens to function as robust collateral primitives.