Liquidators

Varla's liquidation system is split into a router (VarlaLiquidator) and two execution strategies: merge liquidation and convert liquidation.

contracts/VarlaLiquidator.sol — router
contracts/liquidators/VarlaLiquidatorBase.sol — shared abstract
contracts/liquidators/VarlaMergeLiquidator.sol — merge strategy
contracts/liquidators/VarlaConvertLiquidator.sol — convert strategy

Architecture

VarlaLiquidator (router, AccessManaged)
       │
       ├─→ VarlaMergeLiquidator
       │      └─ calls IMarketAdapter.convert() to merge positions
       │
       └─→ VarlaConvertLiquidator
              └─ converts collateral to repayment token

Both inherit: VarlaLiquidatorBase (abstract)
  └─ shared: health checks, bonus calculation, position iteration

VarlaLiquidator (Router)

The entry point for all liquidations. It validates that the user's health factor is below 1.0, then delegates to the appropriate liquidator variant.

Function	Description
`liquidate(address user, ...)`	Permissionless — anyone can liquidate an unhealthy position. Routes to the correct liquidator strategy.
`setMergeLiquidator(address)`	Admin — set the merge liquidator contract
`setConvertLiquidator(address)`	Admin — set the convert liquidator contract

Liquidator Variants

VarlaMergeLiquidator

Merge liquidation — used when a prediction market position can be merged. The liquidator calls the market adapter's convert() function to merge complementary position tokens back into the underlying collateral.

This is the primary liquidation path for Polymarket NegRisk positions (where YES + NO tokens can be merged back into the conditional token).

// Inherits VarlaLiquidatorBase
contract VarlaMergeLiquidator is VarlaLiquidatorBase {
    // Uses adapter.convert() to merge positions
    // Repays debt from merged proceeds
    // Sends bonus to liquidator
}

VarlaConvertLiquidator

Convert liquidation — used when positions cannot be merged. The liquidator seizes the ERC1155 collateral directly and converts it through other means (e.g. selling on a DEX).

// Inherits VarlaLiquidatorBase
contract VarlaConvertLiquidator is VarlaLiquidatorBase {
    // Seizes ERC1155 positions directly
    // Converts to repayment token externally
    // Sends bonus to liquidator
}

VarlaLiquidatorBase (Abstract)

Shared logic inherited by both liquidator variants:

Responsibility	Description
Health factor validation	Confirms HF < 1.0 before proceeding
Bonus calculation	Computes liquidation bonus based on tier config and current HF
Position iteration	Iterates over user's deposited positions to find liquidatable collateral
Dust checks	Ensures remaining debt/collateral don't fall below dust thresholds
Fee collection	Sends protocol liquidation fee to treasury

Liquidation Bonus

The liquidation bonus is dynamic — it increases as the health factor drops further below 1.0, up to a per-tier maximum. This is configured in VarlaCore's TierLiquidationConfig.

Parameter	Source
`maxLiquidationBonusBps`	Per risk tier in VarlaCore
`liquidationFeeBps`	Per risk tier — protocol fee on liquidations
`healthFactorForMaxBonus`	HF threshold where max bonus kicks in
`targetHealthFactor`	HF target after partial liquidation

✦ Key Takeaways

Liquidations are permissionless — anyone can call liquidate() on an unhealthy position
Two strategies: merge (via market adapter) and convert (direct seizure)
Bonus scales dynamically with how far HF drops below 1.0
Protocol takes a fee (liquidationFeeBps) on each liquidation
Dust thresholds prevent tiny residual positions after liquidation