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 acquires temporary liquidity, commonly through a flashloan-style path, so debt can be repaid without pre-funding the full unwind out of pocket.
Repay debt and seize the vault collateral
The relevant Borrow Spoke settles debt into the credit layer, takes custody of the vault collateral, and hands the position into LP-specific settlement.
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
Different LP families are all trying to reach the same end state, but they do not get there through identical exits. Adapter-based handling lets each pool family follow the unwind path that matches its own mechanics.
ACTIVE to LIQUIDATING
Once Aave permits liquidation, the selected position leaves ACTIVE state and enters LIQUIDATING state. The borrower should no longer be able to withdraw it.
LIQUIDATING to SETTLED
After the real LP position has been unwound or sold, the backing supply is cleared and the position becomes 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 If the vault tokens are burned, the LP position must be withdrawn, unwound, or moved into settlement.
Operator Notes
Liquidation bots should index active positions, refresh debt drift, and price accounts from the same oracle stack used by the protocol rather than from raw AMM spot state alone.
Profitability checks should account for slippage, route depth, flashloan costs, and execution risk. Large or unusual unwinds may benefit from private execution paths to reduce adverse MEV exposure.
Thresholds, rewards, and admission rules come from the architecture and risk docs.