DeFi lending protocols allow third parties to liquidate underwater collateral — repaying debt and seizing collateral at a discount. Liquidation bonuses attract MEV bots competing in gas wars.
First successful liquidation captures the bonus — often 5–10% of collateral. Multiple bots detecting the same opportunity simultaneously is what drives gas wars during volatile periods.
Protocol design can spread MEV more fairly: Dutch auction liquidations, partial liquidations, and keeper networks reduce spikes while still resolving bad positions quickly.