Liquidation Bots on Hedera: Revolutionizing Market Efficiencies and Profit Potential

Bonzo Finance is an open source, non-custodial lending protocol based on Aave v2 and deployed to the Hedera mainnet — the protocol enables retail and institutional users to lend assets, earn yield, borrow against collateral, and perform advanced DeFi transactions.

The Bonzo Finance protocol operates using overcollateralized loans; this means that in order to borrow assets, users must first supply value to the protocol in the form of $HBAR, $HBARX, $USDC, or other tokens found natively across the Hedera ecosystem. This model protects the protocol by ensuring loans remain solvent.

But what happens when a borrower’s collateral value falls too much? Enter permissionless liquidation bots acting as automated agents that anyone can operate to help keep the Bonzo Finance ecosystem and its lenders healthy.

If a borrower’s loan-to-value ratio breaches the safe threshold, a liquidation bot can repay a portion of the loan on their behalf, seizing some of the collateral as a reward, known as a “liquidation bonus” (or “liquidation penalty”). This liquidation process protects lenders and the protocol from long-term bad debt accumulation and loss, while giving liquidators an incentive to participate.

Running a liquidation bot profitably on any blockchain can be tricky; bots typically compete with each other to grab liquidations, and they face two big hurdles: volatile and potentially expensive transaction fees and unfair transaction ordering, often leading to unfair MEV – Maximal Extractable Value.

Hedera, with its low, fixed fees and fair transaction ordering, enabled by hashgraph consensus, offers a distinct set of advantages that dramatically improve the performance and economics of credit markets and the liquidation process of Bonzo Finance. Let’s explore how Hedera’s low fees, fair ordering, and MEV-resistant design create a more level playing field for liquidation bot operators, benefiting both the liquidators and the broader DeFi ecosystem.

Low, Fixed Fees: Micro-Liquidations & Mitigating Bad Debt Accumulation

One of the most immediate benefits Hedera brings to its DeFi ecosystem is consistently low and fixed transaction fees. Every transaction on Hedera costs a low, fixed amount of HBAR (pegged to USD), offering cost predictability for end users and developers utilizing on the network.

But why does this matter for liquidation bots?

Because on many networks, gas fees can eat up a liquidator’s profit, especially for small positions. For example, on Ethereum, a bot might spend tens or even hundreds dollars in gas to liquidate a risky loan – meaning it’s only worth it economically if the liquidation bonus and seized collateral are well above that. Small undercollateralized positions (say a loan that’s only slightly underwater) often aren’t worth chasing, so they linger until they eventually become a bigger problem down the road.

On Hedera, by contrast, fees are so low that even “micro-liquidations” become economically viable​. A liquidation bot on Bonzo can profitably clean up a loan that’s just a few dollars in the red, because the transaction fee might cost only a few cents.

This leads to more frequent, small-scale liquidations and the real-world impact is healthier markets:

1. Risky positions get corrected quickly and incrementally.
2. Lenders are safer because bad debt is addressed promptly.
3. Borrowers are subtly better off too – instead of getting hit by one massive liquidation that wipes out a large chunk of collateral, they might experience a series of gentle corrections.
4. The protocol as a whole is less likely to accumulate long-standing “bad debt” — as of February 2025, Aave v2 on Ethereum has accumulated ~$954,000 of bad debt.

Hedera’s low, fixed fees let bots “nibble” at risky loans bit by bit, keeping the system balanced without over-penalizing borrowers​. For a liquidation bot operator, this opens up a long tail of profitable opportunities that simply wouldn’t exist on a high-fee chain. The predictable fee schedule also simplifies planning: a developer can operate a bot without constantly tuning for gas price spikes, making deployment and operation much simpler.

Fair Transaction Ordering: No More Gas Wars

Beyond cost, the ordering of transactions can make or break a liquidation bot. On alternative public blockchain networks, if two bots spot the same vulnerable loan, the one willing to pay a higher fee often wins the race by getting their transaction ordered first.

This turns liquidations into an auction — or gas war, of sorts — where only the most aggressive (and often most expensive) transaction succeeds. Hedera fundamentally changes this dynamic with fair transaction ordering. The network sequences transactions by consensus timestamps rather than bribing nodes.

In simple terms, transactions are ordered by Hedera nodes collectively agreeing they were received, using the median consensus timestamp, not by who paid the most. No single node gets to arbitrarily decide the ordering, and there’s no incentive to stuff a higher fee to jump ahead​.

For liquidation bots, this is a game-changer: If multiple bots try to liquidate the same Bonzo loan at once on Hedera, they can’t bribe their way to the front of the line – the network will process them fairly.

This drastically reduces the cut-throat competition. Bots succeed by being fast and efficient, not by outbidding rivals, which is far more aligned from an incentives perspective. It also means less risk for expensive failed transactions; on Hedera, if a bot comes in second and the loan was already liquidated, they’ve only lost a negligible fee instead of it being potentially expensive depending on the current, variable gas fees on alternative networks.

Fair ordering offers every participant a more equal chance, encouraging more people to run bots, since you don’t need deep pockets for priority fees. The outcome is a more robust liquidation system for Bonzo Finance: one where speed and efficiency trump money, and where liquidations occur in an orderly, first-come-first-served fashion. Hedera’s consensus mechanism essentially neutralizes the advantage of rich or insider players, reinforcing efficiency in liquidation bot programming and operations to snipe liquidation opportunities.

Inherent MEV Mitigation: Liquidations Without Exploitation

Hedera’s transaction ordering fairness goes hand-in-hand with its inherent MEV mitigation. MEV (Maximal Extractable Value) refers to the profit that can be made by manipulating transaction ordering – tactics like front-running (jumping ahead of someone else’s transaction) or sandwich attacks (inserting transactions before and after a target transaction to exploit it).

These practices have plagued Ethereum, Solana, and many other networks, allowing savvy bots or even nodes themselves to prey on users’ trades and liquidations. Solana’s MEV ecosystem, for instance, saw an estimated $8.4 billion in MEV value in 2024, with only $3.4B going to validators and stakers.

Fortunately for Bonzo Finance, Hedera was designed to mitigate MEV at the protocol level. Because of the fair ordering discussed in the previous section — with no single node having the power to reorder transactions — the typical avenues for front-running are largely closed.

On Hedera, there’s no public mempool where pending transactions sit (transactions are processed individually), so malicious actors can’t easily monitor for liquidation transactions and insert their own ahead of it​. And since transaction fees are fixed and not auction-based, there’s no way to bribe the network for priority​. The result is a level playing field for all participants.

Moreover, users of Bonzo Finance benefit because the liquidation process is free of the typical MEV exploits seen elsewhere – no one can easily front-run a liquidation to snipe collateral, or perform a sandwich attack around a vulnerable position. Every action is time-ordered and transparent, which bolsters operational and economic trust. This fair, MEV-resistant environment is critical for maintaining a healthy DeFi ecosystem. It also means that the incentives to run a liquidation bot are aligned purely with securing the platform (and earning the programmed rewards), rather than with trying to exploit users.

For Bonzo Finance, this translates into a more stable and predictable liquidation mechanism – one that its DeFi ecosystem can rely on even during chaotic market conditions, without fear of hidden arbitrage draining value.

Support Hedera DeFi by Operating a Liquidation Bot

The combination of low fees, fast and fair ordering, and MEV mitigation creates a compelling real-world advantage for the Bonzo Finance protocol, its users, and the liquidation bot ecosystem. It showcases how Hedera’s technical infrastructure isn’t just valuable in theory – it delivers tangible benefits for users across its DeFi ecosystem.

Liquidators can operate confidently on Hedera, knowing that even the smallest positions can yield a profit, and that the playing field isn’t stacked against them. In a scenario where crypto markets are rapidly changing, Bonzo liquidation bot operators (and by extension its users) benefit from Hedera’s architecture by keeping the ecosystem healthy and maximizing potential profit.

If you’re a web3 developer and interested in operating a liquidation bot for the Bonzo Finance ecosystem, please check out the official documentation and jump into the Discord for hands-on support.