The decentralized finance (DeFi) ecosystem has witnessed exponential growth, bringing forth inno- vative financial solutions that operate without traditional intermediaries. Central to DeFi’s lending platforms is the concept of collateral, which ensures trust in a trustless environment. However, the current mechanisms for collateral liquidation across various DeFi protocols are fragmented, leading to inefficiencies, potential systemic risks, and often suboptimal returns for lenders. This paper introduces PROCLAIM, a PROtocol-agnostic Collateral Liquidation Auction Integrated Marketplace. PROCLAIM aims to consolidate the liquidation processes of diverse DeFi platforms into a unified, decentralized marketplace. By doing so, it ensures assets at risk of liquidation are auctioned at their fair market value, reduces cascading liquidation risks, and enhances overall market efficiency. Furthermore, through features such as Tiered Auctions, Insurance Integration, and Cross-Chain Support, PROCLAIM offers a comprehensive solution that addresses the multifaceted challenges of the current DeFi liquidation landscape. This paper delves into the architecture, benefits, and potential challenges of PROCLAIM, offering a blueprint for a more resilient and efficient DeFi ecosystem. Keywords Decentralized Finance (DeFi) ·Collateral Liquidation ·Unified Marketplace ·Auction ·Liquidation 1 Introduction Decentralized Finance, commonly referred to as DeFi, represents a paradigm shift in the financial sector, aiming to democratize access to financial services through blockchain technology. Over the past few years, DeFi has experienced a meteoric rise, both in terms of total value locked (TVL) and the diversity of financial products available. From simple peer-to-peer lending platforms to intricate synthetic asset creation, DeFi is reshaping the contours of the financial landscape, offering services that are more transparent, accessible, and often more efficient than their centralized counterparts. At the heart of many DeFi platforms, particularly lending protocols, lies the concept of collateral. In a system devoid of traditional intermediaries and credit checks, collateral acts as a safety net, ensuring that borrowers have skin in the game. It provides lenders with a sense of security, knowing that in the event of a default or market downturn, they have a recourse to recover their funds. However, the very nature of cryptocurrencies and digital assets means that their value can be highly volatile. This volatility necessitates efficient and fair liquidation mechanisms to protect the interests of lenders. Yet, the current state of liquidation in the DeFi space is fraught with challenges. Each protocol often has its own isolated liquidation mechanism, leading to fragmented and sometimes inefficient liquidation processes. In extreme market conditions, this can even lead to cascading liquidations, exacerbating systemic risks in the DeFi ecosystem. Moreover, the lack of a unified marketplace often means assets are not always liquidated at their true market value, potentially leading to losses for lenders and undue penalties for borrowers. Enter PROCLAIM: the PROtocol-agnostic Collateral Liquidation Auction Integrated Marketplace. This paper introduces a novel solution designed to address the aforementioned challenges. By creating a unified, decentralized marketplace for collateral liquidation, PROCLAIM aims to streamline the liquidation process, ensuring assets are auctioned at their fair market value, reducing systemic risks, and enhancing overall efficiency in the DeFi space. Through its innovative features APREPRINT - SEPTEMBER 21, 2023 and integrative approach, PROCLAIM stands poised to revolutionize the DeFi liquidation landscape, offering a more resilient framework for the future of decentralized lending. 2 Background Collateral in DeFi: In traditional finance, lending often relies on credit scores, financial histories, and sometimes physical assets as collateral. Decentralized Finance (DeFi), operating in a trustless environment, requires a different approach. Here, collateral is predominantly digital assets that borrowers lock up in smart contracts to secure a loan. This collateral acts as a guarantee for lenders, ensuring that they can recover their funds should the borrower default or if the value of the borrowed assets drops significantly. The amount a user can borrow in DeFi is typically determined by the collateral’s value and a predetermined collateralization ratio. For instance, if a platform has a collateralization ratio of 150%, a user who deposits $150 worth of a digital asset can borrow up to $100. This over-collateralization is crucial in DeFi to account for the volatility of digital assets. Liquidation Mechanisms in DeFi: Given the volatile nature of cryptocurrencies, there’s always a risk that the value of the collateral might drop below the required collateralization ratio. When this happens, the collateral is subject to liquidation to ensure lenders can still recover their funds. Different DeFi platforms have varied liquidation mechanisms: MakerDAO: When the value of collateral in a Vault drops below the minimum required collateralization ratio, the Vault is marked for liquidation. The system then auctions off the collateral to cover the outstanding debt. Compound: If an account becomes under-collateralized, anyone can repay a portion of the account’s borrowed amount to liquidate and claim a part of the collateral, usually with a liquidation incentive or bonus. Aave: Similar to Compound, when an account’s health factor drops below 1, it becomes vulnerable to liquidation. Liquidators can repay the debt on behalf of the borrower and claim the collateral with a bonus. Challenges with Isolated Liquidation Mechanisms: Inefficiency: Each platform having its own liquidation mechanism can lead to fragmented and sometimes slow responses to market conditions. This can result in assets being sold off at prices that don’t reflect their true market value. Cascading Liquidations: In extreme market downturns, a single liquidation can trigger a chain reaction, causing a cascade of liquidations across various platforms. This can exacerbate market crashes and lead to significant losses. Lack of Liquidity: Individual platforms might not always have enough liquidity or participants to handle large-scale liquidations efficiently, leading to fire sales and suboptimal liquidation prices. Gas Wars: On platforms like Ethereum, multiple liquidators often compete to process lucrative liquidation opportunities, leading to "gas wars" where they pay exorbitant transaction fees. This not only increases costs but can also delay liquidations. 3 Literature review The evolution of decentralized finance (DeFi) is rooted in the foundational concepts introduced by Nakamoto (2008) [ 1]. In his seminal work, Nakamoto introduced Bitcoin, a decentralized peer-to-peer electronic cash system that operates without the need for intermediaries. This groundbreaking idea paved the way for a plethora of innovations in the financial sector. Building on the decentralized foundation set by Bitcoin, Buterin (2013) [ 2] introduced Ethereum, a platform that goes beyond simple transactions to enable complex programmable contracts known as smart contracts. Ethereum’s white paper laid the groundwork for the development of decentralized applications, many of which form the core of today’s DeFi ecosystem. As DeFi began to gain traction, it became evident that the ecosystem was more than just a fleeting trend. Moin et al. (2020) [ 3] provided a comprehensive overview of the emerging world of DeFi, highlighting its potential to revolutionize traditional financial systems. Their work underscores the transformative power of DeFi, emphasizing its potential to democratize access to financial services. 2 APREPRINT - SEPTEMBER 21, 2023 In a more recent exploration, Ozili (2022) [ 4] delves into the global developments and research surrounding DeFi. The paper provides insights into the rapid advancements in the space and highlights the challenges and opportunities that lie ahead. At the heart of the DeFi ecosystem are lending platforms that rely heavily on collateral mechanisms. MakerDAO (2020)[ 5], one of the pioneering platforms in this space, introduced the concept of over-collateralized loans with its Multi-Collateral Dai system. Their approach to maintaining stability in a volatile market has been influential in shaping other DeFi lending protocols. Similarly, Compound (2020) [ 6] and Aave (2020) [ 7] have introduced their own unique mechanisms for decentralized lending. While Compound’s white paper details its algorithmic interest rate model, Aave’s documentation delves into its unique features like flash loans, which have since become a staple in the DeFi landscape. The broader implications of DeFi and its potential to reshape financial markets are discussed in depth by Schär (2021)[ 8]. His work provides a macroscopic view of the DeFi ecosystem, highlighting both its innovative potential and the challenges it faces. However, as with any burgeoning technology, DeFi is not without its challenges. Evans (2020) [ 9] discusses the intricacies of constructing and scaling DeFi platforms on public blockchains like Ethereum. The paper sheds light on the technical and economic challenges that need to be addressed for DeFi to achieve mainstream adoption. Decentralized exchanges (DEXs) form a crucial component of the DeFi ecosystem. Angeris et al. (2019) [ 10] provides a detailed analysis of Uniswap, one of the most popular DEXs. Their work offers insights into the automated market maker model and its implications for liquidity and pricing. The vulnerabilities of DEXs, especially in the context of transaction reordering and frontrunning, are highlighted by Chitra & Kumaresan (2019) [ 11]. Their paper, titled "Flash Boys 2.0," draws attention to the potential pitfalls and exploitative strategies that can be employed on DEXs. Lastly, the concept of flash loans, a novel financial instrument unique to DeFi, is explored by Qin et al. (2020) [ 12] . Their work delves into the potential of flash loans to both bolster and attack the DeFi ecosystem, highlighting the double-edged nature of such innovations. 4 PROCLAIM: A Unified Solution 4.1 Introduction to the PROCLAIM Marketplace: In the rapidly evolving landscape of Decentralized Finance (DeFi), the need for efficient, transparent, and unified solutions has never been more pressing. Addressing the fragmented and often inefficient collateral liquidation mecha- nisms across various DeFi platforms, we introduce PROCLAIM: the PROtocol-agnostic Collateral Liquidation Auction Integrated Marketplace. PROCLAIM is not just another DeFi platform; it is a holistic solution designed to bridge the gaps between existing platforms, ensuring that the liquidation process is streamlined, fair, and reflective of true market values. Integration of DeFi Protocols: At its core, PROCLAIM is built on the principle of integration. Recognizing the diversity and uniqueness of each DeFi protocol, PROCLAIM is designed to be protocol-agnostic. This means that rather than favoring one protocol over another, it provides a platform where all protocols can seamlessly interact. How does this work? PROCLAIM employs a series of smart contracts that can interface with various DeFi platforms. When collateral is close to liquidation on an integrated platform, the protocol can send this "at-risk" collateral to PROCLAIM’s marketplace. This ensures that instead of each protocol handling its own liquidations in isolation, they are all channeled into a single, unified marketplace. Benefits of a Unified Auction Marketplace: •Fair Market Value: With a larger, consolidated pool of participants, assets are more likely to be auctioned at their true market value. This prevents undervaluation that can occur in isolated liquidation events, ensuring that lenders get the maximum possible return and borrowers are not unduly penalized. •Reduced Systemic Risk: By preventing cascading liquidations across multiple platforms, PROCLAIM can help stabilize the broader DeFi ecosystem during volatile market conditions. A unified marketplace can absorb shocks more effectively than fragmented, individual platforms. 3 APREPRINT - SEPTEMBER 21, 2023 •Efficiency: Consolidating liquidations into one marketplace streamlines the process, reducing the time and complexity involved in liquidating assets. This is especially beneficial during rapid market downturns where speed is of the essence. •Enhanced Liquidity: A unified marketplace attracts more participants, both on the buying and selling sides. This increased participation ensures that there’s always sufficient liquidity, even for large liquidation events. •Transparency: With all liquidations happening in one place, it’s easier for participants to monitor, audit, and analyze liquidation events. This transparency can boost confidence in the DeFi ecosystem. Algorithm 1 Auction Contract 1:procedure LISTASSET (asset, startingPrice ) 2: asset.status ←listed 3: asset.startingPrice ←startingPrice 4: asset.endTime ←now+auctionDuration 5:end procedure 6:procedure PLACE BID(asset, bidAmount ) 7: ifbidAmount > asset.currentBid andnow< asset.endTime then 8: asset.currentBid ←bidAmount 9: end if 10:end procedure 11:procedure FINALIZE AUCTION (asset ) 12: ifnow> asset.endTime then 13: Transfer funds and asset between bidder and lister 14: end if 15:end procedure Algorithm 2 Integration Contract 1:procedure CHANNEL ASSET (asset ) 2: ifasset.liquidationThreshold is breached then 3: Send asset to PROCLAIM marketplace 4: end if 5:end procedure Algorithm 3 Liquidity Contract 1:procedure ADDLIQUIDITY (amount ) 2: liquidityPool ←liquidityPool +amount 3:end procedure 4:procedure REMOVE LIQUIDITY (amount ) 5: liquidityPool ←liquidityPool −amount 6:end procedure The technical foundation of PROCLAIM is built upon a series of meticulously designed smart contracts as you can see in the class sequence diagram 1 which defines the PROCLAIM framework. These contracts, reminiscent of the software that powers traditional financial systems, ensure the platform’s smooth operation, but with the added advantage of decentralization and transparency inherent to blockchain technology. •Auction Contract: As you can see on 1 Think of this as an auction house in the traditional finance world, like Sotheby’s or Christie’s, but digital and automated. The Auction Contract is responsible for listing assets, managing bids, and finalizing the auction process. When an asset is listed, it’s given a starting price and a duration for the auction. As bids come in, the contract ensures that only the highest current bid is accepted. Once the auction duration expires, the contract oversees the transfer of funds between the bidder and the lister, ensuring both parties fulfill their obligations. •Integration Contract: This can be likened to a clearinghouse in traditional finance. In the stock market, when trades are made, they don’t settle instantly. Instead, they go through a clearinghouse, which ensures that the trade is valid and that both parties have the necessary funds and assets. Similarly, the Integration Contract 2 4 APREPRINT - SEPTEMBER 21, 2023 Algorithm 4 Cross-Chain Contract 1:procedure SUPPORT ASSET (blockchain, asset ) 2: supportedAssets [blockchain ].add(asset ) 3:end procedure 4:procedure REMOVE SUPPORT (blockchain, asset ) 5: supportedAssets [blockchain ].remove (asset ) 6:end procedure interfaces with various DeFi platforms. When an asset on a connected platform is close to liquidation, this contract channels the asset to the PROCLAIM marketplace, ensuring it’s ready for auction. •Liquidity Contract: In traditional finance, liquidity providers, like market makers, ensure that there’s always enough capital in the market for trades to occur without significant price shifts. The Liquidity Contract 3 plays a similar role for PROCLAIM. It manages the pool of funds provided by liquidity providers. When more liquidity is needed in the marketplace, funds can be added, and when there’s excess, funds can be removed, ensuring that the marketplace always has the right amount of capital. •Cross-Chain Contract: This is a bit more unique to the world of blockchain, but for analogy’s sake, consider foreign exchange services in traditional finance. When you travel, you might need to exchange your home currency for another. The Cross-Chain Contract 4 facilitates a similar function but for digital assets across different blockchains. It ensures that PROCLAIM can support assets from various blockchains, making it a truly universal solution. In essence, while PROCLAIM operates in the cutting-edge world of DeFi, its foundational principles and operations can find parallels in the traditional financial world. By combining the best of both worlds, PROCLAIM offers a solution that’s both innovative and rooted in time-tested financial practices. Figure 1: PROCLAIM Framework 4.2 Core Concepts of PROCLAIM PROCLAIM introduces a comprehensive approach to DeFi liquidations which can be seen in Figure 2 as PROCLAIM Core mechanisms, offering features like a Tiered auction mechanism that categorizes assets based on risk and value, and an Insurance Integration to safeguard against sudden market downturns. The platform incentivizes DeFi protocols for integration, employs dynamic auction mechanisms adaptable to market conditions, and ensures robust liquidity by integrating with major liquidity providers. Furthermore, its Cross-Chain Support makes PROCLAIM a versatile solution, capable of handling assets from various blockchains, solidifying its position as a universal DeFi liquidation platform. Refer to the accompanying image for a visual overview of these features. 5 APREPRINT - SEPTEMBER 21, 2023 •Tiered Auctions Mechanism: One of the standout features of PROCLAIM is its Tiered Auctions Mechanism. Recognizing that not all assets are created equal, this mechanism categorizes assets based on their inherent risk and market value. For instance, a well-established cryptocurrency like Ethereum might be placed in a different tier compared to a newer, more volatile token. By categorizing assets into different tiers, PROCLAIM ensures that each asset is auctioned in a manner that reflects its true market dynamics, ensuring fairness and efficiency in the liquidation process. •Insurance Integration: In the volatile world of DeFi, market downturns, while expected, can sometimes be severe and sudden. To protect participants from such unforeseen events, PROCLAIM integrates with leading decentralized insurance protocols. This integration means that in the event of a significant market anomaly or a black swan event, losses can be mitigated, ensuring that lenders and other participants are not unduly affected. •Protocol Incentives: For PROCLAIM to truly revolutionize the DeFi liquidation landscape, it’s essential for existing DeFi platforms to adopt and integrate with it. To this end, PROCLAIM offers a range of incentives for protocols. These could range from reduced fees for early adopters to shared revenue models, ensuring that it’s not just beneficial but also lucrative for platforms to be a part of the PROCLAIM ecosystem. •Dynamic Auction Mechanisms: Financial markets are in a constant state of flux, and what works best in one market condition might not be optimal in another. PROCLAIM’s Dynamic Auction Mechanisms ensure that the auction process is adaptable. Depending on market liquidity, volatility, and other factors, the auction parameters can be adjusted in real time, ensuring that assets are always liquidated in the most efficient manner possible. •Liquidity Provider Integration: Liquidity is the lifeblood of any financial marketplace. Recognizing this, PROCLAIM integrates seamlessly with major liquidity providers in the DeFi space. By doing so, it ensures that there’s always sufficient liquidity in the marketplace, even during large-scale liquidation events. This not only ensures fair asset valuation but also boosts confidence among participants. •Cross-Chain Support: The DeFi ecosystem is not limited to a single blockchain. With the rise of multiple blockchain platforms hosting DeFi protocols, it’s crucial for a solution like PROCLAIM to be versatile. PROCLAIM’s Cross-Chain Support ensures that assets from various blockchains can be supported and liquidated in the marketplace. Whether it’s assets from Ethereum, Binance Smart Chain, Polkadot, or any other platform, PROCLAIM is equipped to handle them, making it a truly universal solution. Figure 2: PROCLAIM core mechanisms 4.3 Technical Architecture: PROCLAIM PROCLAIM’s technical architecture is underpinned by a series of specialized smart contracts, each tailored for distinct functionalities ranging from auction processes to cross-chain asset support. These contracts work in tandem to ensure seamless integration with various DeFi platforms and liquidity providers. The accompanying diagram 3 offers a visual representation of this intricate technical framework using an sequence diagram. Smart Contracts Powering PROCLAIM At the heart of PROCLAIM lies a robust and intricate system of smart contracts. These contracts, often referred to as the building blocks of decentralized applications, are responsible for the seamless and autonomous functioning of the platform. Each smart contract is tailored for specific functionalities: 6 APREPRINT - SEPTEMBER 21, 2023 •Auction Contract: Manages the entire auction process, from listing assets to finalizing bids and transferring funds. •Integration Contract: Interfaces with various DeFi platforms, ensuring that assets close to liquidation are correctly channeled to the PROCLAIM marketplace. •Liquidity Contract: Manages the integration with liquidity providers, ensuring that there’s always sufficient liquidity in the marketplace. •Cross-Chain Contract: Facilitates the support of assets from various blockchains, ensuring that PROCLAIM remains a truly universal solution. Governance Model Decentralization is a core tenet of PROCLAIM, and this extends to its decision-making process. PROCLAIM employs a decentralized governance model, where token holders have a say in the platform’s direction and major decisions. This could range from adjusting auction parameters to integrating new DeFi platforms or even updating the platform’s core functionalities. The governance model ensures that: •Decisions are Democratic: Major changes are subject to community voting, ensuring that a single entity doesn’t have undue influence over the platform. •Transparency: All proposals, discussions, and voting results are publicly available, fostering trust among participants. •Adaptability: The platform can evolve based on community feedback and changing market conditions. Security Measures Given the financial nature of PROCLAIM and the assets it handles, security is paramount. PROCLAIM employs a multi-faceted approach to security: •Audits: Before launch and after major updates, PROCLAIM’s smart contracts undergo rigorous audits by reputable third-party firms. This ensures that the code is free from vulnerabilities. •Bug Bounties: The community is encouraged to identify and report potential vulnerabilities through a bug bounty program. This crowdsourced approach to security ensures that a large number of experts are constantly vetting the platform. •Timelocks: Critical actions, especially those related to governance decisions, are subject to timelocks. This means that there’s a delay between when a decision is made and when it’s executed, giving the community time to react and intervene if necessary. •Multi-Signature Wallets: Funds and critical assets are stored in multi-signature wallets, ensuring that no single entity can access or move them without consensus. 5 Benefits and Challenges of PROCLAIM 5.1 Benefits of PROCLAIM •Fair Market Value: In traditional auction systems, especially those operating in silos, assets can often be undervalued due to a lack of competition or awareness. PROCLAIM addresses this by creating a unified marketplace where assets from various DeFi platforms are listed. With a broader audience and more partic- ipants, assets are more likely to be sold at their true market value. This ensures that lenders retrieve a fair amount for their collateral, and borrowers aren’t penalized excessively due to undervaluation. It’s akin to having a valuable painting auctioned at a renowned global auction house rather than a local event; the reach and reputation ensure the artwork fetches its genuine worth. •Reduced Systemic Risk: One of the significant concerns in the DeFi landscape is the domino effect of liquidations. If one significant asset or protocol faces issues, it can lead to a cascade of liquidations across the ecosystem, amplifying the initial problem. PROCLAIM, by consolidating liquidations into a single marketplace, acts as a buffer. It absorbs the shocks and distributes them, preventing a single point of failure and ensuring that the broader DeFi ecosystem remains stable. Think of it as a dam that controls and manages the flow of water, preventing downstream areas from getting flooded. 7 APREPRINT - SEPTEMBER 21, 2023 •Efficiency: Handling liquidations individually for each protocol can be time-consuming and complex, es- pecially during market downturns when swift actions are crucial. PROCLAIM streamlines this process. By centralizing the liquidation events, it reduces the time taken to list, bid, and finalize the sale of assets. This efficiency not only benefits the immediate participants but also ensures that the broader DeFi market remains agile and responsive. It’s similar to a centralized clearinghouse in traditional finance, which consolidates trades and settlements, ensuring the market operates smoothly. •Liquidity: Liquidity, or the ease with which assets can be bought or sold, is crucial for any financial marketplace. PROCLAIM, with its unified approach, attracts a larger pool of bidders and participants. This increased participation ensures there’s always a buyer on the other side, even for large liquidation events. The result is a marketplace that’s not just active but also resilient, capable of handling significant trade volumes without drastic price fluctuations. It’s akin to a bustling stock exchange where the sheer volume of participants ensures that stocks can be easily bought or sold. Figure 3: Architecture Sequence diagram of PROCLAIM 5.2 Challenges and Limitations of PROCLAIM •Potential Obstacles in Implementing PROCLAIM: Implementing a system as comprehensive as PRO- CLAIM is no small feat. One of the primary challenges lies in integrating with a myriad of existing DeFi platforms, each with its unique architecture and smart contract design. Ensuring seamless interoperability requires meticulous planning and robust technical solutions. Additionally, the DeFi landscape is ever-evolving. Adapting to new protocols, standards, and technologies will be a continuous challenge to keep PROCLAIM relevant and efficient. •Scenarios Where PROCLAIM Might Not Be the Optimal Solution: While PROCLAIM aims to be a universal solution for DeFi liquidations, there might be scenarios where it’s not the best fit. For instance: –Niche Protocols: Some DeFi platforms might cater to a very niche audience or deal with specialized assets. In such cases, a dedicated liquidation mechanism tailored to that niche might be more effective than a generalized solution like PROCLAIM. –Rapid Liquidations: In extremely volatile market conditions, the time taken to channel assets to PRO- CLAIM and then auction them might be longer than direct, immediate liquidations on the original platform. 8 APREPRINT - SEPTEMBER 21, 2023 –Regulatory Concerns: As regulations around DeFi evolve, there might be jurisdictions where centralized liquidation platforms face stricter regulatory scrutiny compared to decentralized, individual platform liquidations. •Addressing Concerns of Centralization: One of the core tenets of DeFi is decentralization, ensuring that no single entity has undue control or influence. By consolidating liquidations, PROCLAIM might inadvertently introduce a point of centralization in the ecosystem. This centralization can raise concerns about: –Single Point of Failure: If PROCLAIM faces technical issues or is compromised, it could impact a large portion of the DeFi liquidation landscape. –Market Influence: With a significant volume of assets being liquidated on PROCLAIM, it might inadver- tently influence asset prices or market perceptions. –Governance Issues: Decisions made by PROCLAIM, given its potential influence, could have wide- reaching implications. Ensuring a fair and decentralized governance model will be crucial to address concerns of centralization. While PROCLAIM offers a promising solution to many of the challenges in the DeFi liquidation landscape, it’s essential to approach its implementation and adoption with a clear understanding of its limitations. Balancing its benefits against potential challenges will be key to its long-term success and acceptance in the DeFi community. 6 Case Studies 6.1 Hypothetical Scenario: The Sudden Market Downturn In April 2023, the DeFi market experienced a sudden downturn due to regulatory changes in major economies. Many assets were on the brink of liquidation. Without PROCLAIM: Individual DeFi platforms scrambled to handle the surge in liquidations. Some platforms, overwhelmed by the volume, experienced delays, causing assets to be sold at far below their market value. Borrowers were unduly penalized, and lenders didn’t recover as much as they could have. With PROCLAIM: As assets approached their liquidation thresholds, they were channeled to the PROCLAIM marketplace. Despite the market turmoil, the centralized auction system attracted a large pool of bidders. Assets were sold closer to their true market value, ensuring fairer outcomes for both borrowers and lenders. The streamlined process also meant that liquidations were handled efficiently, even amidst the market chaos. 6.2 Hypothetical Scenario: The New DeFi Protocol In August 2023, a new DeFi lending platform, DeFiDragon, was launched. It quickly gained traction but lacked a sophisticated liquidation mechanism. Without PROCLAIM: DeFiDragon would have had to invest significant resources to develop its liquidation system. As a new platform, any missteps in this process could have eroded user trust. With PROCLAIM: DeFiDragon integrated with PROCLAIM from day one. This not only saved them development time but also assured users that liquidations if they occurred, would be handled by a trusted and efficient third party. DeFiDragon could focus on its core offerings, knowing that the liquidation aspect was in safe hands. 6.3 Analysis of IRON Finance DeFi Rug Pull and PROCLAIM’s Potential Impact: IRON Finance’s collapse in 2021 was a stark reminder of the vulnerabilities in the DeFi space. The "bank run" on the Titan token, a part of the IRON Finance ecosystem, led to its value plummeting to near zero in a matter of hours. Without PROCLAIM: As was the case, panic spread quickly. The lack of a centralized liquidation mechanism meant that as users rushed to redeem their tokens, the value dropped precipitously. The absence of a stabilizing force in the liquidation process exacerbated the crisis. With PROCLAIM: If IRON Finance had been integrated with PROCLAIM, the sudden surge in potential liquidations could have been channeled to the PROCLAIM marketplace. This centralized system, with its broader pool of participants, might have introduced a stabilizing effect, preventing the extreme "race to the bottom" seen with Titan. While it’s uncertain if PROCLAIM could have entirely prevented the collapse, it’s plausible that the rate of decline and the ensuing panic could have been mitigated, offering users a slightly better exit opportunity. 9 APREPRINT - SEPTEMBER 21, 2023 7 Discussion and Future Directions The introduction of PROCLAIM into the DeFi landscape represents a significant step forward in addressing the challenges associated with liquidation processes. By centralizing and streamlining these processes, PROCLAIM offers a solution that promises efficiency, fairness, and reduced systemic risk. However, like any innovative solution, there are areas within PROCLAIM that warrant further refinement and exploration. 1.Scalability Concerns: As the DeFi ecosystem continues to grow, the volume of assets and the frequency of liquidations will likely increase. While PROCLAIM’s current architecture can handle the present demands, it’s essential to ensure that it remains scalable. Future work could focus on optimizing smart contract operations, reducing gas fees, and ensuring that the platform can handle a surge in liquidation events without performance degradation. 2.Governance Model Evolution: While PROCLAIM’s decentralized governance model is a strength, it’s crucial to continually assess its effectiveness. As the platform gains more users and integrates with more DeFi protocols, ensuring that decision-making remains democratic and resistant to manipulation will be vital. Exploring more sophisticated voting mechanisms or introducing checks and balances could be areas of future refinement. 3.Cross-Chain Complexities: The promise of supporting assets from various blockchains is ambitious. As more blockchains emerge and existing ones evolve, ensuring seamless cross-chain support will be challenging. Future iterations of PROCLAIM could delve deeper into creating more robust cross-chain bridges and ensuring that assets from any blockchain can be easily and securely liquidated on the platform. 4.Enhanced Security Measures: While PROCLAIM’s current security measures are robust, the dynamic nature of threats in the crypto space means that security can never be static. Continuous research into potential vulnerabilities, regular third-party audits, and the development of more advanced security protocols will be essential to ensure the platform’s integrity. 5.Integration with Other DeFi Services: Beyond liquidations, there’s potential for PROCLAIM to integrate with other DeFi services, such as decentral- ized insurance platforms or oracle services. Such integrations could enhance the platform’s offerings, making it a more holistic solution in the DeFi space. 6.Economic Models and Incentive Structures: To ensure widespread adoption, PROCLAIM’s economic model and incentive structures for both users and integrated DeFi platforms should be regularly assessed. As market dynamics change, ensuring that the platform remains attractive for all stakeholders will be crucial. 8 Conclusion The decentralized finance (DeFi) ecosystem, while revolutionary in its approach to financial systems, has not been without its challenges. Liquidation events, in particular, have often been marred by inefficiencies, lack of fairness, and systemic risks. Enter PROCLAIM, a solution designed to address these very challenges by centralizing and streamlining the liquidation process across various DeFi platforms. PROCLAIM’s significance cannot be understated. By offering a unified marketplace for assets close to liquidation, it ensures that these assets are sold at their true market value, benefiting both lenders and borrowers. Its design inherently reduces the systemic risk of cascading liquidations, a concern that has long plagued the DeFi community. Furthermore, by integrating with various DeFi platforms and providing support for assets across different blockchains, PROCLAIM stands as a testament to the power of collaboration and interoperability in the blockchain space. Looking ahead, the potential transformative impact of PROCLAIM on the DeFi ecosystem is immense. As the platform continues to evolve, refine, and expand its offerings, it could very well set the gold standard for how liquidations are handled in the DeFi world. Beyond just addressing existing challenges, PROCLAIM paves the way for a more stable, efficient, and resilient DeFi landscape, ensuring that the revolutionary promise of decentralized finance is realized to its fullest potential.