Liquidation Flow
Runtime sequence for how unhealthy LP-backed positions move from detection through settlement once liquidation starts.
Overview
Liquidation starts when an account's health factor falls below the liquidation threshold. Aave handles debt accounting and the liquidation entry point against the ERC-20 vault collateral. Avana handles the LP settlement behind that vault token. Debt is repaid, vault collateral is seized, the matching vault token is burned, the real LP position is settled, and any residual value is returned according to the market rule.
Runtime Sequence
Detect an unhealthy account
Liquidation nodes or external keepers watch the same risk-adjusted collateral values used by the protocol and flag accounts whose debt now exceeds allowed borrowing capacity.
Source execution liquidity
The liquidator sources the capital needed to repay debt before LP settlement completes. A flashloan-based route can provide temporary liquidity; a prefunded route uses the liquidator's own capital.
Repay debt and seize the vault collateral
The Borrow Spoke coordinates debt settlement with the Hub and transfers the seized vault collateral into the LP-specific settlement process.
Burn the vault token and mark the backing position
The adapter burns the seized vault token and marks the real LP position as in settlement so the backing supply cannot remain outstanding against a position that is already being unwound.
Settle the LP position and close the liquidation
Avana unwinds, sells, auctions, or transfers the real LP position, repays execution liquidity, pays the liquidator reward, and routes any surplus according to the market rule.
State Transitions
LP families use different settlement methods to reach the SETTLED state. The adapter selects the method required by the position format, such as redeeming fungible LP shares or resolving an individual position NFT.
ACTIVE to LIQUIDATING
Once Aave permits liquidation, the selected position moves from ACTIVE to LIQUIDATING. Borrower withdrawal is blocked while that position is in settlement. The settlement layer uses the collateral family, backing-position identifier, and configured unwind route to resolve the position and clear its corresponding vault supply.
LIQUIDATING to SETTLED
After the real LP position has been unwound or sold, the backing supply is cleared and the position becomes SETTLED. Settlement value is applied in a fixed order. It first covers debt, then the liquidator reward, then settlement costs. Any value left after those obligations is surplus, and that surplus follows the market rule for the collateral being settled.
State rule
A vault token cannot remain outstanding after its backing LP position has been removed. If the vault tokens are burned, the LP position must be withdrawn, unwound, or moved into settlement. Liquidation connects two representations of the same collateral: the vault token balance recorded in Aave and the backing LP position tracked by Avana. Seizure of the vault token must resolve to the corresponding LP position so settlement removes both the backing position and its collateral representation consistently.
Operator Notes
Liquidation monitoring combines indexed positions, current debt including accrued interest, and the protocol's oracle valuation. Raw AMM spot prices alone do not reproduce the collateral values used for eligibility checks. An execution estimate includes slippage, route depth, temporary-liquidity costs, and transaction risk. For large or unusual unwinds, private transaction delivery may reduce exposure to adverse MEV.
Thresholds, rewards, and admission rules come from the architecture and risk docs.