Silo V3 launches new liquidation mechanism opening door to new forms of crypto collateral

Decentralized lending protocol Silo has launched V3, featuring a new liquidation mechanism designed to protect lenders by reducing reliance on decentralized exchange (DEX) liquidity for repaying undercollateralized loans. This new system allows the protocol to absorb pledged collateral into the loan asset at a discount if external liquidity is insufficient, ensuring lenders are fully covered. The team argues that traditional protocols fail during market stress when liquidity is thin. Silo V3 employs two liquidation routes: traditional DEX redemption if above the DEX Liquidation Threshold, or an alternative path if above the Collateral-Debt Swap Threshold. This structural evolution aims to make lending markets safer by design while enabling new, valuable collateral types—like structured LP tokens or liquid staking representations—that were previously excluded due to insufficient on-chain liquidity.

(Source：The Block)