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  "id": "defi-liquidations",
  "canonical": "https://degreesofsatoshi.com/encyclopedia/defi-liquidations/",
  "collection": "defi",
  "title": "DeFi liquidations: exchanging debt repayment for collateral",
  "description": "Trace a collateralized loan liquidation, separate eligibility from actual execution, and understand bonuses, close limits and residual bad debt.",
  "aliases": [
    "loan liquidation"
  ],
  "dates": {
    "published": "2026-10-02",
    "modified": "2026-10-02",
    "verified": "2026-10-02T15:08:18.373Z",
    "dataAsOf": null
  },
  "authorship": {
    "publisher": "Degrees of Satoshi editorial project",
    "process": "AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied."
  },
  "quickAnswer": {
    "text": "Liquidation lets an eligible caller repay eligible debt from an unhealthy loan in exchange for collateral under the market’s rules. In Aave-style lending, a health factor below one triggers eligibility. The allowed repayment amount, incentive and remaining position depend on the asset, market and protocol version.",
    "claimId": "defi-liquidations-quick-answer",
    "sourceIds": [
      "pool",
      "health"
    ]
  },
  "keyFacts": [
    {
      "label": "Trigger",
      "value": "Eligibility uses the market’s collateral and debt valuation.",
      "sourceIds": [
        "health"
      ],
      "id": "trigger",
      "claimId": "defi-liquidations-fact-trigger"
    },
    {
      "label": "Settlement",
      "value": "A liquidation caller supplies debt tokens’ underlying asset and receives collateral.",
      "sourceIds": [
        "pool"
      ],
      "id": "settlement",
      "claimId": "defi-liquidations-fact-settlement"
    },
    {
      "label": "Competition",
      "value": "Liquidations can create MEV opportunities.",
      "sourceIds": [
        "mev"
      ],
      "id": "competition",
      "claimId": "defi-liquidations-fact-competition"
    }
  ],
  "prerequisites": [
    "collateral-and-health-factors"
  ],
  "sections": [
    {
      "id": "process",
      "heading": "A liquidation is a transaction, not just a warning",
      "paragraphs": [
        "A monitoring bot or another caller identifies an eligible position and submits a liquidation call. The contract checks its conditions at execution. If accepted, debt is reduced and collateral is transferred according to the rules.",
        "Crossing a threshold makes a position eligible; it does not ensure a liquidation transaction is included instantly. Prices and account state can change between observation and execution."
      ],
      "sourceIds": [
        "pool",
        "health"
      ]
    },
    {
      "id": "example",
      "heading": "Separate the repayment from the incentive",
      "paragraphs": [
        "In a hypothetical system with a 5% liquidation bonus, a caller repaying 100 quote units of debt receives collateral valued at 105 quote units before other fees, caps or rounding. The borrower loses that collateral and reduces debt by 100. This is a teaching example, not a quoted Aave parameter.",
        "The bonus encourages execution but must be evaluated against gas, sale liquidity and changing prices. A profitable-looking liquidation can fail or cost more than its proceeds. The permitted fraction of debt is also version- and condition-specific, so one fixed close percentage does not describe every market."
      ],
      "sourceIds": [
        "pool"
      ]
    },
    {
      "id": "remaining",
      "heading": "Liquidation can leave a remaining position or deficit",
      "paragraphs": [
        "A partial liquidation need not close all debt. Recompute the remaining collateral, debt and thresholds to understand the result. Rapid price changes or poor collateral liquidity can leave debt that available collateral cannot fully cover.",
        "A dashboard notification is not the settlement itself. For a historical event, cite the chain transaction, the market settings at that block and the oracle values used. A later configuration should not be used to reinterpret an older liquidation."
      ],
      "sourceIds": [
        "health",
        "pool",
        "mev"
      ]
    }
  ],
  "faq": [
    {
      "question": "Does liquidation always sell all of the collateral?",
      "answer": "No. Repayment limits, available collateral and protocol conditions determine the amount. A position may be partially liquidated, and the exact rules can change across versions and markets.",
      "sourceIds": [
        "pool",
        "health"
      ]
    }
  ],
  "claims": [
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      "id": "defi-liquidations-quick-answer",
      "articleSlug": "defi-liquidations",
      "statement": "Liquidation lets an eligible caller repay eligible debt from an unhealthy loan in exchange for collateral under the market’s rules. In Aave-style lending, a health factor below one triggers eligibility. The allowed repayment amount, incentive and remaining position depend on the asset, market and protocol version.",
      "sourceIds": [
        "source-b35859a766315ce4",
        "source-74f79d59daaab5f0"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; repay; liquidationCall"
        },
        {
          "sourceId": "source-74f79d59daaab5f0",
          "locator": "Health Factor; Managing Health Factor; Liquidation Process"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T15:08:18.373Z",
        "reviewer": "automated independent verification",
        "notes": [
          "Read Aave liquidationCall and current Health Factor & Liquidations help, plus Ethereum MEV liquidations. Recomputed hypothetical100 debt repayment and105 collateral at5% bonus.",
          "Found a documentation conflict: Pool page describes fixed0.5 close factor, while current help describes condition-dependent50%/100%. Article intentionally asserts neither as universal. Corrected QA from repay part to repay eligible debt and retained market/version qualifiers."
        ]
      }
    },
    {
      "id": "defi-liquidations-fact-trigger",
      "articleSlug": "defi-liquidations",
      "statement": "Trigger: Eligibility uses the market’s collateral and debt valuation.",
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        "source-74f79d59daaab5f0"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-74f79d59daaab5f0",
          "locator": "Health Factor; Managing Health Factor; Liquidation Process"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
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      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T15:08:18.373Z",
        "reviewer": "automated independent verification",
        "notes": [
          "Read Aave liquidationCall and current Health Factor & Liquidations help, plus Ethereum MEV liquidations. Recomputed hypothetical100 debt repayment and105 collateral at5% bonus.",
          "Found a documentation conflict: Pool page describes fixed0.5 close factor, while current help describes condition-dependent50%/100%. Article intentionally asserts neither as universal. Corrected QA from repay part to repay eligible debt and retained market/version qualifiers."
        ]
      }
    },
    {
      "id": "defi-liquidations-fact-settlement",
      "articleSlug": "defi-liquidations",
      "statement": "Settlement: A liquidation caller supplies debt tokens’ underlying asset and receives collateral.",
      "sourceIds": [
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; repay; liquidationCall"
        }
      ],
      "scope": {
        "collection": "defi",
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      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T15:08:18.373Z",
        "reviewer": "automated independent verification",
        "notes": [
          "Read Aave liquidationCall and current Health Factor & Liquidations help, plus Ethereum MEV liquidations. Recomputed hypothetical100 debt repayment and105 collateral at5% bonus.",
          "Found a documentation conflict: Pool page describes fixed0.5 close factor, while current help describes condition-dependent50%/100%. Article intentionally asserts neither as universal. Corrected QA from repay part to repay eligible debt and retained market/version qualifiers."
        ]
      }
    },
    {
      "id": "defi-liquidations-fact-competition",
      "articleSlug": "defi-liquidations",
      "statement": "Competition: Liquidations can create MEV opportunities.",
      "sourceIds": [
        "source-5bbc1a71e6d876eb"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-5bbc1a71e6d876eb",
          "locator": "MEV extraction; Examples of MEV"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
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      },
      "qualification": "",
      "evidenceStatus": "documented",
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        "method": "independent automated source review",
        "checkedAt": "2026-10-02T15:08:18.373Z",
        "reviewer": "automated independent verification",
        "notes": [
          "Read Aave liquidationCall and current Health Factor & Liquidations help, plus Ethereum MEV liquidations. Recomputed hypothetical100 debt repayment and105 collateral at5% bonus.",
          "Found a documentation conflict: Pool page describes fixed0.5 close factor, while current help describes condition-dependent50%/100%. Article intentionally asserts neither as universal. Corrected QA from repay part to repay eligible debt and retained market/version qualifiers."
        ]
      }
    }
  ],
  "sources": [
    {
      "id": "pool",
      "label": "Aave V3 Pool",
      "publisher": "Aave",
      "url": "https://aave.com/docs/aave-v3/smart-contracts/pool",
      "locator": "supply; withdraw; borrow; repay; liquidationCall",
      "note": "Pool operations, collateral restrictions and liquidation settlement.",
      "version": "Aave V3",
      "checkedAt": "2026-10-02",
      "recordId": "source-b35859a766315ce4",
      "contentSha256": null
    },
    {
      "id": "health",
      "label": "Health Factor & Liquidations",
      "publisher": "Aave",
      "url": "https://aave.com/help/borrowing/liquidations",
      "locator": "Health Factor; Managing Health Factor; Liquidation Process",
      "note": "Weighted liquidation thresholds and eligibility below health factor one.",
      "version": null,
      "checkedAt": "2026-10-02",
      "recordId": "source-74f79d59daaab5f0",
      "contentSha256": null
    },
    {
      "id": "mev",
      "label": "Maximal extractable value",
      "publisher": "ethereum.org contributors",
      "url": "https://ethereum.org/developers/docs/mev/",
      "locator": "MEV extraction; Examples of MEV",
      "note": "Transaction ordering, arbitrage, liquidation and sandwich mechanisms.",
      "version": null,
      "checkedAt": "2026-10-02",
      "recordId": "source-5bbc1a71e6d876eb",
      "contentSha256": null
    }
  ],
  "related": {
    "articles": [
      "collateral-and-health-factors",
      "blockchain-oracles",
      "flash-loans"
    ],
    "dossiers": [],
    "wallets": []
  },
  "revisionHistory": [
    {
      "date": "2026-10-02",
      "kind": "published",
      "summary": "First publication after primary-source research and independent automated verification."
    },
    {
      "date": "2026-10-02",
      "kind": "prepublication-review",
      "summary": "Before first publication, independent review checked and revised: quickAnswer. Read Aave liquidationCall and current Health Factor & Liquidations help, plus Ethereum MEV liquidations. Recomputed hypothetical100 debt repayment and105 collateral at5% bonus. Found a documentation conflict: Pool page describes fixed0.5 close factor, while current help describes condition-dependent50%/100%. Article intentionally asserts neither as universal. Corrected QA from repay part to repay eligible debt and retained market/version qualifiers."
    }
  ],
  "citation": "Degrees of Satoshi editorial project. “DeFi liquidations: exchanging debt repayment for collateral.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/defi-liquidations/"
}