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Aaveator 5C2C49BE-0B07-4C3F-8D36-B1FB2C7ACC0C Created with sketchtool. 113 Stranger 3 Mar 20 2023 10:25

How does bad debt accrue on Aave for Crv?

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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.

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Aaveator 5C2C49BE-0B07-4C3F-8D36-B1FB2C7ACC0C Created with sketchtool. 113 Stranger 3 Mar 22 2023 11:52

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.