Aave V3 Liquidation Architecture: Health Factor Computation, Bonus Mechanics, and Bot Design

Frequently Asked Questions

01.What triggers a liquidation in Aave V3?

A liquidation in Aave V3 is triggered when a borrower's health factor falls below 1.0. The health factor is computed as the sum of each collateral asset's value multiplied by its liquidation threshold, divided by total outstanding borrows denominated in the base currency. When an oracle price update causes this ratio to drop below 1.0, any external caller can invoke the liquidationCall function on the Pool contract to liquidate up to 50% of the borrower's debt in a single transaction.

02.How does Aave V3 liquidation bonus work?

The liquidation bonus in Aave V3 is an additional percentage of collateral awarded to the liquidator on top of the debt repaid. Bonus rates are set per asset in the protocol configuration: stablecoins like USDC and DAI carry a 5% bonus, WETH carries a 5% bonus, while WBTC carries a 10% bonus. The liquidator repays a portion of the borrower's debt and receives collateral tokens equivalent to the debt value plus the bonus, creating a profitable incentive for third-party liquidation bots to maintain protocol solvency.

03.What is the close factor in Aave V3 liquidations?

The close factor in Aave V3 is the maximum percentage of a borrower's outstanding debt that can be repaid in a single liquidation transaction. Aave V3 sets the standard close factor at 50%, meaning a liquidator can repay up to half of the total debt position per call. If the health factor falls below 0.95, the protocol allows a 100% close factor, enabling full position liquidation in a single transaction to restore solvency faster under extreme market conditions.