Euler v2 doesn't liquidate like Aave
Aave-style markets pay liquidators a fixed bonus (often 5-10%) the instant health factor hits 1.0. Euler Vault Kit runs a reverse Dutch auction instead: the discount opens at 0% and rises as the account gets more unsafe, capped by a per-vault ceiling. Compare against a standard health factor on the DeFi health factor calculator.
How the reverse Dutch auction discount is computed
Per the Euler Vault Kit liquidation module: a health score is risk-adjusted collateral value divided by liability value β collateral value Γ liquidation LTV Γ· debt. While the account is solvent, health score sits above 1 and nobody can liquidate. The moment it drops below 1, Euler treats discount factor = health score, so the applied discount is 1 β health score, floored so it never exceeds the vault's governance-set maxLiquidationDiscount.
That's the opposite of a normal Dutch auction β the "price" (discount) starts at zero and gets more attractive to liquidators the longer a position stays broken and the deeper it falls, not the other way around. A position 2% underwater on a vault with a 15% max discount only offers liquidators a ~2% bonus β often not worth the gas. A position 20% underwater on the same vault is capped at the full 15%, which pulls liquidators in fast and is exactly the point: Euler wants the worst positions cleared before they become bad debt.
Liquidations aren't restricted by a fixed close factor either β a liquidator can repay any amount of the debt up to the full balance in one shot, receiving collateral worth repay Γ· (1 β discount). The bonus on top of the repay amount is discount Γ· (1 β discount) of the repaid value. Source: Euler Vault Kit docs and liquidation module (github.com/euler-xyz/euler-vault-kit) β exact maxLiquidationDiscount and LTV values are set per vault by governance, so treat this as a model of the mechanism, not a specific deployed vault's live numbers.