Aave Liquidations: Health Factors, Bonuses, and Profitability
Summary
This article explains how liquidators can profit by repaying part of an undercollateralized Aave borrower’s debt and receiving collateral with a liquidation bonus. It introduces the health factor as the protocol’s solvency measure, describes how falling collateral values, rising debt values, or accrued interest can make a position eligible, and outlines the role of loan-to-value and liquidation thresholds. It also explains that Aave flash loans can provide the debt asset for a liquidation, provided the loan is repaid within the same block.
A practical workflow is to monitor accounts, confirm eligibility, gather position and fee data, estimate whether the bonus exceeds gas and swap costs, then arrange funding and execute the liquidation. The article gives example bonus levels and notes that applicable terms vary by collateral risk and protocol parameters. Profitability is not assured: transaction costs, multiple swaps, changing risk settings, and competition for eligible accounts can erode returns. The discussion is conceptual and does not provide a tested bot, measured strategy returns, or a complete implementation.
Key ideas
- Aave liquidations become available when a borrower's health factor falls below the protocol threshold.
- Liquidators repay debt and receive collateral whose value includes a protocol-defined bonus.
- Flash loans can fund the debt repayment if they are repaid within the same block.
- A profitability estimate must account for gas and any collateral swap costs.
- Collateral risk and protocol parameters affect liquidation bonuses and eligibility.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.