A lending protocol needs someone to repay debt when a borrower's collateral protection falls below its required threshold. That liquidator incurs transaction costs, price risk, and execution risk. A liquidation bonus allows the liquidator to receive collateral with a stated premium relative to the debt repaid, according to the protocol's valuation rules. The bonus is one parameter in the liquidation process, alongside the trigger threshold, repayable fraction, fees, and available collateral.

If a hypothetical market offers a five percent bonus and a liquidator repays 100 units of debt, the gross collateral entitlement could be worth 105 units at the protocol's oracle price. This is not a guaranteed five-unit profit. Selling that collateral may move its market price; gas, flash-loan costs, protocol fees, and a changing oracle value can reduce or eliminate the gain. Actual implementations may also cap repayment or deduct a fee from the bonus.

A larger incentive can encourage liquidation during difficult markets, but it also increases the collateral lost by the borrower for a given repayment. An incentive that is too small may fail to attract liquidators when transaction costs or market uncertainty rise. Compare the bonus with collateral liquidity and oracle design rather than viewing it alone. Parameter changes belong to specific assets, deployments, and governance decisions, so an encyclopedia should not present one numerical bonus as universal across a protocol.