Gearbox

Liquidation is meant to close the account before equity is exhausted. If a shortfall still occurs, the protocol first absorbs it from unclaimed protocol fees, and any remainder is socialised across pool depositors through a reduction in the Diesel (LP) token exchange rate (Gearbox liquidation dynamics). Passive lenders are therefore the residual bearer of loss, not the DAO treasury.

Base rates come from a two kink utilisation curve configured per pool with parameters U1, U2, base rate and three slopes (Gearbox markets and rates). On top of that, quota rates are set either by GEAR stakers voting in gauges or by a market curator, and that extra fee is split between passive lenders and the DAO (GEAR utility and staking).

Health factor is total weighted value divided by total debt, checked after every call a Credit Account makes; falling below the threshold allows liquidation, which can be partial or full (Gearbox dev docs, Gearbox liquidation dynamics). Liquidators take a premium of roughly 3% to 4% and the protocol takes 1% to 1.5% (Gearbox protocol fees).

The worst case is a correlated collateral shock or an oracle failure that leaves accounts insolvent faster than liquidators can act, at which point losses hit the Diesel exchange rate directly (Gearbox liquidation dynamics). The historical average leverage across Credit Accounts has been high, around 5.57x with a weighted average health factor of 1.105 in one 2023 monthly report, which is a thin buffer (Gearbox April protocol update).

No. Documentation states explicitly that the DAO cannot change risk parameters of a live curator managed market and cannot seize or reallocate deposits; it governs versions, chain activation and the fee split (Gearbox docs, Protocol DAO). That is a credit positive for market isolation and a credit negative for the DAO's ability to intervene in a crisis.

Public claims of zero security incidents and zero bad debt over five years come from the co-founder in a July 2026 conference talk, not from an independent audit of the record (Mikhail Lazarev talk summary). Treat it as a management assertion. No third party incident post mortem for Gearbox was found in this session.

A 4 of 12 veto and unpause multisig exists for rapid response, deliberately limited so it can only block, never propose (V3.0 operational multisigs). Technical changes otherwise sit behind a 2 day timelock (V3.0 operational multisigs).