Which Positions Will Be Affected by Changes in Liquidation Rewards?
There are mainly two ways to view bad debt in lending protocols: directly check official or third-party visual dashboards, or query via on-chain data interfaces yourself. Currently, publicly available dashboards mainly cover mainstream protocols such as Aave and Compound.
Method 1: Use Third-Party Bad Debt Dashboards (Recommended)
This is the most intuitive and effortless way, requiring no programming skills.
Step 1: Determine which lending protocol you want to view
Currently, the publicly available bad debt dashboards are primarily for Aave and Compound-related protocols.
Step 2: Visit the corresponding dashboard website
Aave V3: Visit the dedicated dashboard at bad-debt.riskdao.org provided by RiskDAO, which can track bad debt data for Aave V3 on multiple chains like Arbitrum, Avalanche, Optimism, Polygon in real time. This dashboard was developed with funding from Aave Grants DAO, and the data is public and open source.
Compound-related: Yearn Finance's monitoring scripts include a module specifically for tracking Compound V3 markets. Additionally, Gauntlet also provides a risk data dashboard for Compound.
Step 3: Read the dashboard data
After opening the dashboard, you can usually see the following key information:
Total Bad Debt Amount: The current total bad debt of the protocol.
Distribution by Chain/Market: Which chain and which asset pool the bad debt appears in.
Bad Debt Account Details: Which accounts have generated bad debt, and the specific amounts.
Completion Criteria: Successfully access the dashboard and clearly see the current total bad debt of the protocol.
Method 2: Check Protocol Official Data and Public Information
After the Aave V3.3 upgrade, the protocol itself has improved its bad debt tracking mechanism. After the upgrade, the protocol performs an additional verification after liquidation. If an account has no collateral but still has debt after liquidation, the remaining debt will be automatically destroyed by the system and recorded as a "Deficit", saved as a new field in the reserve data. Therefore, you can also query public data about "Deficit" or "Bad Debt" on the Aave official governance forum or related documentation. However, tracking precise real-time data still primarily relies on external dashboards.
Method 3: Query via On-Chain Data Interface (Advanced)
If you have development skills, you can also directly query via on-chain data interfaces. Ethereum has an ERC-7893 standard proposal that defines a standardized solvency proof interface for DeFi protocols. If a protocol implements this standard, you can directly call the interface to query its assets, liabilities, and solvency ratio.
For example, ERC-7893 defines several key query functions:
getProtocolAssets(): Get the total assets of the protocol.getProtocolLiabilities(): Get the total liabilities of the protocol.getSolvencyRatio(): Calculate the current solvency ratio (total assets / total liabilities).verifySolvency(): Check if the protocol meets the minimum solvency requirement (e.g., 105%).
Completion Criteria: Able to call the contract function and return the protocol's asset and liability data.
Why Does Bad Debt Exist?
The main reasons for bad debt are usually two:
The cost of liquidating "dust" accounts is too high: When a small account is insolvent, the gas fees (on-chain transaction fees) that a liquidator needs to pay may exceed the profit from liquidation, resulting in no one willing to liquidate, and the bad debt of these accounts will remain on the books.
Sharp market fluctuations lead to untimely liquidation: When the price of collateral assets plummets in a short time, liquidators may not have time to react or cannot liquidate in time, resulting in bad debt.
Confirmation of Completion
By using any of the above methods, successfully seeing the current total bad debt amount of the protocol and being able to filter by different assets or chains means you have mastered the method of viewing bad debt. Additionally, you can follow the protocol's governance forum or related security reports to understand the causes of bad debt and subsequent handling plans.
