How does bad debt accrue on Aave for Crv?

  • Aave liquidation
  • Borrow rate
  • Aave

I am curious to know how bad debt accrues on Aave for Crv. I understand that borrowed < supplied always and when borrowed > supplied, aka Health factor <1, the supplied assets are liquidated to pay back the loans. However, I am still unsure how bad debt accrues and how it affects the borrower and lender.

Answers 1

TLDR is that there was not enough on-chain liquidity to absorb the liquidation volume, so at some point it's unprofitable to continue liquidating, which leaves bad debt.