{
  "$schema": "https://degreesofsatoshi.com/encyclopedia/schemas/article-v1.json",
  "schemaVersion": "1.0.0",
  "id": "liquidation-bonus",
  "canonical": "https://degreesofsatoshi.com/encyclopedia/liquidation-bonus/",
  "collection": "defi",
  "title": "Liquidation bonuses: who receives the discount?",
  "description": "Understand the incentive paid to a DeFi liquidator and calculate how it affects collateral removed, without assuming every liquidation restores a position to safety.",
  "aliases": [],
  "dates": {
    "published": "2026-10-02",
    "modified": "2026-10-02",
    "verified": "2026-10-02T18:15:18.493Z",
    "dataAsOf": "2026-10-02"
  },
  "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": "A liquidation bonus is additional collateral value a protocol offers to a liquidator who repays eligible debt. It compensates for execution and market risk under the protocol’s rules. For the borrower, it can increase collateral lost relative to debt repaid; exact bonuses, fees and close limits are market- and version-specific.",
    "claimId": "liquidation-bonus-quick-answer",
    "sourceIds": [
      "aave-pool",
      "aave-reserve"
    ]
  },
  "keyFacts": [
    {
      "label": "Mechanism",
      "value": "The liquidator repays debt and receives collateral under the liquidation calculation.",
      "sourceIds": [
        "aave-pool"
      ],
      "id": "mechanism",
      "claimId": "liquidation-bonus-fact-mechanism"
    },
    {
      "label": "Incentive",
      "value": "The collateral amount can include a liquidation bonus.",
      "sourceIds": [
        "aave-pool"
      ],
      "id": "incentive",
      "claimId": "liquidation-bonus-fact-incentive"
    },
    {
      "label": "Scope",
      "value": "Reserve risk parameters vary across markets and over time.",
      "sourceIds": [
        "aave-reserve"
      ],
      "id": "scope",
      "claimId": "liquidation-bonus-fact-scope"
    }
  ],
  "prerequisites": [
    "defi-liquidations"
  ],
  "sections": [
    {
      "id": "example",
      "heading": "Measure the borrower’s collateral cost",
      "sourceIds": [
        "aave-pool"
      ],
      "paragraphs": [
        "With hypothetical parameters and no protocol fee, repaying $100 of debt with a 5% bonus would entitle the liquidator to $105 of collateral at the calculation’s prices. The borrower loses more collateral value than the debt reduction.",
        "This example omits rounding, limits and price movement. It explains the bonus rather than reproducing a particular live liquidation."
      ]
    },
    {
      "id": "profit",
      "heading": "A bonus is not guaranteed liquidator profit",
      "sourceIds": [
        "aave-pool",
        "eth-gas"
      ],
      "paragraphs": [
        "The liquidator still faces transaction fees, sourcing the repayment asset, selling or holding collateral and possible price movement. Competition can also affect inclusion.",
        "An oracle-valued bonus can be difficult to realize in an illiquid market. The accounting incentive and actual trade proceeds are different quantities."
      ]
    },
    {
      "id": "outcome",
      "heading": "Inspect the remaining position after execution",
      "sourceIds": [
        "aave-pool",
        "aave-health"
      ],
      "paragraphs": [
        "Liquidation may cover only part of the debt, subject to close-factor and collateral limits. The result should be computed from the actual receipt and remaining balances.",
        "Do not assume every liquidation completely repays the loan or returns health factor above a safe level. Version-specific rules and market conditions determine the outcome."
      ]
    }
  ],
  "faq": [
    {
      "question": "Is a liquidation bonus an extra interest payment to the borrower?",
      "answer": "No. It is an incentive to the liquidator, commonly delivered through additional collateral taken as part of the liquidation.",
      "sourceIds": [
        "aave-pool"
      ]
    }
  ],
  "claims": [
    {
      "id": "liquidation-bonus-quick-answer",
      "articleSlug": "liquidation-bonus",
      "statement": "A liquidation bonus is additional collateral value a protocol offers to a liquidator who repays eligible debt. It compensates for execution and market risk under the protocol’s rules. For the borrower, it can increase collateral lost relative to debt repaid; exact bonuses, fees and close limits are market- and version-specific.",
      "sourceIds": [
        "source-b35859a766315ce4",
        "source-15989fc372ee02a4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; liquidationCall"
        },
        {
          "sourceId": "source-15989fc372ee02a4",
          "locator": "Key Reserve Parameters; Dynamic Parameters and Governance"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": "2026-10-02",
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Read Pool liquidationCall and new health-factor source; recomputed 100*(1+.05)=105 before fee and rounding. Current and older documentation expose different close-factor descriptions, so no universal live close factor was asserted.",
          "Preserved the caveat that liquidation does not necessarily restore health above 1. Counterexample under the stated simplified accounting: collateral1000, debt900, threshold.8, repay100, bonus.05 leaves collateral895/debt800 and HF.895. This is algebraic scope checking, not a live Aave eligibility claim."
        ]
      }
    },
    {
      "id": "liquidation-bonus-fact-mechanism",
      "articleSlug": "liquidation-bonus",
      "statement": "Mechanism: The liquidator repays debt and receives collateral under the liquidation calculation.",
      "sourceIds": [
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; liquidationCall"
        }
      ],
      "scope": {
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        "dataAsOf": "2026-10-02",
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Read Pool liquidationCall and new health-factor source; recomputed 100*(1+.05)=105 before fee and rounding. Current and older documentation expose different close-factor descriptions, so no universal live close factor was asserted.",
          "Preserved the caveat that liquidation does not necessarily restore health above 1. Counterexample under the stated simplified accounting: collateral1000, debt900, threshold.8, repay100, bonus.05 leaves collateral895/debt800 and HF.895. This is algebraic scope checking, not a live Aave eligibility claim."
        ]
      }
    },
    {
      "id": "liquidation-bonus-fact-incentive",
      "articleSlug": "liquidation-bonus",
      "statement": "Incentive: The collateral amount can include a liquidation bonus.",
      "sourceIds": [
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; liquidationCall"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": "2026-10-02",
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Read Pool liquidationCall and new health-factor source; recomputed 100*(1+.05)=105 before fee and rounding. Current and older documentation expose different close-factor descriptions, so no universal live close factor was asserted.",
          "Preserved the caveat that liquidation does not necessarily restore health above 1. Counterexample under the stated simplified accounting: collateral1000, debt900, threshold.8, repay100, bonus.05 leaves collateral895/debt800 and HF.895. This is algebraic scope checking, not a live Aave eligibility claim."
        ]
      }
    },
    {
      "id": "liquidation-bonus-fact-scope",
      "articleSlug": "liquidation-bonus",
      "statement": "Scope: Reserve risk parameters vary across markets and over time.",
      "sourceIds": [
        "source-15989fc372ee02a4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-15989fc372ee02a4",
          "locator": "Key Reserve Parameters; Dynamic Parameters and Governance"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": "2026-10-02",
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      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
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        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Read Pool liquidationCall and new health-factor source; recomputed 100*(1+.05)=105 before fee and rounding. Current and older documentation expose different close-factor descriptions, so no universal live close factor was asserted.",
          "Preserved the caveat that liquidation does not necessarily restore health above 1. Counterexample under the stated simplified accounting: collateral1000, debt900, threshold.8, repay100, bonus.05 leaves collateral895/debt800 and HF.895. This is algebraic scope checking, not a live Aave eligibility claim."
        ]
      }
    }
  ],
  "sources": [
    {
      "id": "aave-pool",
      "label": "Pool",
      "publisher": "Aave",
      "url": "https://aave.com/docs/aave-v3/smart-contracts/pool",
      "locator": "supply; withdraw; borrow; liquidationCall",
      "note": "Collateralization, available liquidity and liquidation operations.",
      "version": "Aave V3 documentation",
      "checkedAt": "2026-10-02T17:03:44.834Z",
      "contentSha256": "73645ef223ef64419c7301794cfc4089bc79b6bfce71373b0125fd5e9a78f1b2",
      "recordId": "source-b35859a766315ce4"
    },
    {
      "id": "aave-reserve",
      "label": "Reserve",
      "publisher": "Aave",
      "url": "https://www.aave.com/docs/aave-v3/concepts/reserve",
      "locator": "Key Reserve Parameters; Dynamic Parameters and Governance",
      "note": "Reserve LTV, liquidation threshold, borrow availability, caps and rate parameters.",
      "version": "Aave V3 documentation",
      "checkedAt": "2026-10-02T17:03:44.647Z",
      "contentSha256": "d0a67f33949654d88c124c14222ce1e493f86a9895b956b5e7b99c5f8102e672",
      "recordId": "source-15989fc372ee02a4"
    },
    {
      "id": "eth-gas",
      "label": "Gas and fees",
      "publisher": "ethereum.org contributors",
      "url": "https://ethereum.org/en/developers/docs/gas/",
      "locator": "What is gas?; Base fee; Priority fee",
      "note": "Execution resource units, fee components and gas expenditure.",
      "version": null,
      "checkedAt": "2026-10-02T17:03:41.688Z",
      "contentSha256": "566e61b7dce594a477ef28bab1f5a23279feb4f782e2838623fc7491c9daec66",
      "recordId": "source-5cadd0da692ffaa8"
    },
    {
      "id": "aave-health",
      "label": "Health Factor & Liquidations",
      "publisher": "Aave",
      "url": "https://aave.com/help/borrowing/liquidations",
      "locator": "Health Factor; Managing Health Factor; Liquidation Process",
      "note": "Weighted-threshold health factor, changing collateral/debt values and liquidation incentives; live close-factor values are not assumed universal.",
      "version": null,
      "checkedAt": "2026-10-02T17:59:03.725Z",
      "contentSha256": "512ab68ac2d3922caad45b9aaad7316daec23a23a6e249dbb2013a429021bc23",
      "recordId": "source-74f79d59daaab5f0"
    }
  ],
  "related": {
    "articles": [
      "loan-to-value-vs-liquidation-threshold",
      "collateral-and-health-factors",
      "blockchain-oracles"
    ],
    "dossiers": [],
    "wallets": []
  },
  "revisionHistory": [
    {
      "date": "2026-10-02",
      "kind": "published",
      "summary": "First publication after primary-source research and independent automated verification."
    }
  ],
  "citation": "Degrees of Satoshi editorial project. “Liquidation bonuses: who receives the discount?.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/liquidation-bonus/"
}