A discount on collateral that incentivizes liquidators to repay the debt of unhealthy positions in lending protocols. When a position's health factor drops below 1, liquidators can repay a portion of the debt and receive the equivalent collateral value plus a bonus (typically 5-15%). The bonus must be large enough to cover transaction costs and risk, but not so large that borrowers suffer excessive losses.
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A discount on collateral that incentivizes liquidators to repay the debt of unhealthy positions in lending protocols. When a position's health factor drops below 1, liquidators can repay a portion of the debt and receive the equivalent collateral value plus a bonus (typically 5-15%). The bonus must be large enough to cover transaction costs and risk, but not so large that borrowers suffer excessive losses.
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AMMs, routing, liquidity, lending, and trading infrastructure.
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Liquidation Bonus (liquidation-bonus) Category: DeFi Definition: A discount on collateral that incentivizes liquidators to repay the debt of unhealthy positions in lending protocols. When a position's health factor drops below 1, liquidators can repay a portion of the debt and receive the equivalent collateral value plus a bonus (typically 5-15%). The bonus must be large enough to cover transaction costs and risk, but not so large that borrowers suffer excessive losses. Aliases: Liquidation Incentive, Liquidation Penalty Related: Liquidation, Health Factor, Lending Protocol
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The process of repaying a borrower's debt by selling their collateral when their position's LTV exceeds the liquidation threshold. Liquidators (typically bots) repay a portion of the debt and receive the collateral at a discount (liquidation bonus, typically 5-10%). Liquidation keeps lending protocols solvent. On Solana, liquidation bots compete via Jito bundles.
A ratio that measures the safety of a borrowing position in a lending protocol, calculated as the risk-adjusted collateral value divided by the total borrow value. A health factor above 1 means the position is safe; at or below 1, the position becomes eligible for liquidation. Users monitor health factor to avoid liquidation, and protocols display it prominently as the primary risk indicator.
A DeFi protocol that enables users to deposit tokens to earn yield and borrow tokens against collateral. Key Solana lending protocols include Solend, MarginFi, Kamino, and Save (formerly Solend v2). Lending rates float based on utilization (borrowed/deposited). Deposits receive interest-bearing receipt tokens representing their share.
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The process of repaying a borrower's debt by selling their collateral when their position's LTV exceeds the liquidation threshold. Liquidators (typically bots) repay a portion of the debt and receive the collateral at a discount (liquidation bonus, typically 5-10%). Liquidation keeps lending protocols solvent. On Solana, liquidation bots compete via Jito bundles.
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The process of repaying a borrower's debt by selling their collateral when their position's LTV exceeds the liquidation threshold. Liquidators (typically bots) repay a portion of the debt and receive the collateral at a discount (liquidation bonus, typically 5-10%). Liquidation keeps lending protocols solvent. On Solana, liquidation bots compete via Jito bundles.
A ratio that measures the safety of a borrowing position in a lending protocol, calculated as the risk-adjusted collateral value divided by the total borrow value. A health factor above 1 means the position is safe; at or below 1, the position becomes eligible for liquidation. Users monitor health factor to avoid liquidation, and protocols display it prominently as the primary risk indicator.
A DeFi protocol that enables users to deposit tokens to earn yield and borrow tokens against collateral. Key Solana lending protocols include Solend, MarginFi, Kamino, and Save (formerly Solend v2). Lending rates float based on utilization (borrowed/deposited). Deposits receive interest-bearing receipt tokens representing their share.
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A protocol that enables token swaps using algorithmic pricing against pooled liquidity instead of matching individual buyers and sellers. AMMs use mathematical formulas (typically constant product x*y=k) to determine prices based on the ratio of tokens in a liquidity pool. On Solana, major AMMs include Raydium, Orca, and Meteora.
An AMM design where liquidity providers concentrate their capital within specific price ranges instead of across the full 0-to-infinity range. CLMMs dramatically improve capital efficiency—LPs earn more fees per dollar deposited within their active range. If the price moves outside the range, the position becomes inactive. Orca Whirlpools and Raydium CLMM are leading implementations on Solana.
A smart-contract-held reserve of two or more tokens that enables trading via an AMM. Users deposit token pairs in specified ratios to become liquidity providers and earn trading fees. Pools are identified by their token pair and fee tier. Pool depth (total value locked) determines price impact for trades.
A token issued to liquidity providers representing their proportional share of a pool's reserves and accrued fees. LP tokens can be burned to withdraw the underlying assets. The value of LP tokens changes as the pool's token ratios shift and fees accumulate. LP tokens are often stakeable in yield farming programs for additional rewards.