[archerabi]

Here's a concrete example. AAVE is a protocol that allows lenders to lend money to borrowers in a decentralized manner.

So as a borrower, today, if you were to borrower 8000 USDC and deposit 10 ETH as collateral, the AAVE protocol would automatically sell your collateral if the ETH price went to 941$. So your position is "auto liquidated". https://aavecalculator.com/

AAVE currently has ~$9.9B in assets locked into its protocol.

[djbebs]

That no different from any margin loan

[blitzar]

It is no different at all. However, in traditional finance that is called a "margin loan" in defi it is called a "crypto interest account paying 20% with 0 chance of losing all your money"

[archerabi]

Somewhat, look at toomuchtodo's comment. In tradfi, there are humans involved and you might be able to avert liquidation.

[colinmhayes]

Yes it is. In traditional finance, especially at the big players, the bank will call the person about to be margin called to tell them they need to post more collateral, or if it looks like the market is being manipulated they’ll let the loan be undercollateralized for a short time. Defi auto liquidation makes it much easier to spiral due to unwinding after small losses.