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Liquidation Examples

Illustrative scenarios showing how the same liquidation framework applies to different LP collateral types.

Overview

These examples are intentionally simplified. They show the shape of a liquidation without introducing extra protocol rules beyond the canonical Liquidation Framework.

In every case, Avana values collateral conservatively, repays debt into the credit layer, unwinds the LP position through a supported path, and returns residual value after execution costs and liquidation premium are settled.

Fungible LP Example

A borrower has deposited a fungible LP token from an approved stable or weighted pool. The account falls below allowed borrowing capacity after pool composition and oracle inputs move against it.

  • • The liquidation node detects the shortfall and sources execution liquidity.
  • • Debt is repaid and the LP token is redeemed into its underlying assets.
  • • Claimable fees are realized if available and helpful to recovery.
  • • Underlying assets are routed into the debt asset and the liquidation closes.
  • • Any value left after repayment and premium is returned to the borrower.

Concentrated Liquidity Example

A concentrated liquidity position drifts toward the edge of its active range. The account remains healthy for a time, then becomes liquidatable when debt outpaces the recoverable value of the position.

  • • The node values the position from its current range, liquidity, and token split.
  • • Once liquidation begins, claimable fees are checked before principal is unwound.
  • • Because the position may now be mostly one-sided, routing logic adapts to the actual inventory recovered.
  • • Settlement follows the same pattern: repay execution liquidity, pay premium, return residual value.

Multi-Position Account

A borrower may hold several LP positions inside one Borrow Spoke. Borrowing capacity is aggregated across those positions, but liquidation still works at the position level.

  • • The spoke reports one aggregate borrowing capacity to the Hub.
  • • When the account becomes unhealthy, the liquidation node chooses the unwind path that best restores solvency.
  • • One position may be enough to close the shortfall, or several may need to be partially or fully unwound.
  • • This is why execution ordering, oracle consistency, and route depth matter as much as raw spot value.

Edge Cases

  • The position may be mostly one-sided by the time liquidation starts, especially for concentrated liquidity.
  • Pool depth may be sufficient for valuation but still thin enough to require conservative unwind routing.
  • Claimable fees can improve recoveries, but they should not be treated as guaranteed until actually realized.
  • A borrower may have several positions contributing to one spoke-level borrowing capacity, so liquidation sequencing matters.

Summary

Across fungible LPs, concentrated liquidity, and multi-position accounts, the protocol is solving the same problem: convert LP collateral into recoverable debt repayment without relying on optimistic NAV. The details of the unwind change, but the policy framework does not.