# Liquidation bonuses: who receives the discount?

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.

Evidence: [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool); [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve)

Canonical: https://degreesofsatoshi.com/encyclopedia/liquidation-bonus/
Published: 2026-10-02
Substantively modified: 2026-10-02
Independently verified by an automated reviewer: 2026-10-02T18:15:18.493Z
Data current through: 2026-10-02

AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied.

## Key facts

- **Mechanism:** The liquidator repays debt and receives collateral under the liquidation calculation. ([Pool](https://aave.com/docs/aave-v3/smart-contracts/pool))
- **Incentive:** The collateral amount can include a liquidation bonus. ([Pool](https://aave.com/docs/aave-v3/smart-contracts/pool))
- **Scope:** Reserve risk parameters vary across markets and over time. ([Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve))

## Measure the borrower’s collateral cost

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.

Evidence: [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool)

## A bonus is not guaranteed liquidator profit

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.

Evidence: [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool); [Gas and fees](https://ethereum.org/en/developers/docs/gas/)

## Inspect the remaining position after execution

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.

Evidence: [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool); [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations)

## Questions

### Is a liquidation bonus an extra interest payment to the borrower?

No. It is an incentive to the liquidator, commonly delivered through additional collateral taken as part of the liquidation.

Evidence: [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool)

## Claims and scope

### liquidation-bonus-quick-answer

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.

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

### liquidation-bonus-fact-mechanism

Mechanism: The liquidator repays debt and receives collateral under the liquidation calculation.

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

### liquidation-bonus-fact-incentive

Incentive: The collateral amount can include a liquidation bonus.

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

### liquidation-bonus-fact-scope

Scope: Reserve risk parameters vary across markets and over time.

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

## Sources

- [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) — Aave. Collateralization, available liquidity and liquidation operations. Locator: supply; withdraw; borrow; liquidationCall. Retrieved: 2026-10-02T17:03:44.834Z.
- [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve) — Aave. Reserve LTV, liquidation threshold, borrow availability, caps and rate parameters. Locator: Key Reserve Parameters; Dynamic Parameters and Governance. Retrieved: 2026-10-02T17:03:44.647Z.
- [Gas and fees](https://ethereum.org/en/developers/docs/gas/) — ethereum.org contributors. Execution resource units, fee components and gas expenditure. Locator: What is gas?; Base fee; Priority fee. Retrieved: 2026-10-02T17:03:41.688Z.
- [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations) — Aave. Weighted-threshold health factor, changing collateral/debt values and liquidation incentives; live close-factor values are not assumed universal. Locator: Health Factor; Managing Health Factor; Liquidation Process. Retrieved: 2026-10-02T17:59:03.725Z.

## Revision history

- 2026-10-02: First publication after primary-source research and independent automated verification.

## Cite this entry

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/