Auction

Auction is a method used in DeFi protocols to manage Bad Debt by selling off undercollateralized loan assets to third parties, allowing the protocol to recover the debt. This mechanism is employed to quickly secure liquidity and maintain the protocol's financial stability when bad debt arises.

An auction provides external participants with an opportunity to purchase these assets, helping the protocol minimize asset losses and enhance its stability. Auctions serve as an efficient and timely solution for addressing bad debt, playing a crucial role in maintaining liquidity and reliability within the protocol.