# Liquidation Fee and Oracle Extractable Value (OEV) Revenue Distribution
Overview
Horizon captures protocol revenue during liquidation events through two independent mechanisms:
1. **Liquidation Fee** — a protocol-level fee applied when positions are liquidated.
2. **Oracle Extractable Value (OEV) Rewards** — revenue generated from auctioning oracle update rights via OEV-enabled data feeds.
Both revenue sources are routed into a unified distribution system and allocated according to predefined protocol weights. This ensures that liquidation activity directly reinforces depositor yield, token value accrual, and treasury strength.
***
Liquidation Fee
When a position is liquidated, Horizon applies a **20% liquidation fee** on the liquidation bonus.
This fee is captured by the protocol and transferred to the Revenue Router contract.
The remaining liquidation bonus is received by the liquidator as compensation for executing the liquidation.
This mechanism converts liquidation events into protocol revenue without impacting debt repayment or collateral accounting.
***
Oracle Extractable Value (OEV) Rewards
Horizon integrates OEV-enabled oracle infrastructure. When a price update creates a liquidation opportunity, searchers compete in an auction for the right to execute the update and corresponding liquidation transaction.
The winning bidder pays an OEV reward, which is transferred directly to Horizon.
OEV rewards are paid in the native asset of the chain and represent additional protocol revenue independent of the liquidation fee.
This ensures that value traditionally captured by external actors is internalised by the protocol.
***
Unified Revenue Routing
Both liquidation fees and OEV rewards are sent to the **Revenue Router**, which serves as the single entry point for liquidation-derived protocol revenue.
The Revenue Router distributes funds according to the following fixed allocation:
* **50% → Earn Vaults**
* **30% → Horizon Buy and Burn**
* **20% → Treasury**
This distribution is executed atomically at the time revenue is received.
***
Example Liquidation Event
Consider a position that becomes eligible for liquidation.
* Collateral value: **$100,000**
* Debt value: **$85,000**
* Liquidation bonus: **$10,000**
Horizon applies a **20% liquidation fee**, resulting in:
* **$2,000 → Protocol (Liquidation Fee)**
* **$8,000 → Liquidator**
At the same time, the oracle update is auctioned through the OEV mechanism.
* Winning searcher bid (OEV reward): **$3,000 → Protocol**
Total protocol revenue from this liquidation:
* **$2,000 (Liquidation Fee)**
* **$3,000 (OEV Reward)**
* **$5,000 Total Protocol Revenue**
This revenue is distributed by the Revenue Router as follows:
* **$2,500 → Earn Vaults (50%)**
* **$1,500 → Horizon Buy and Burn (30%)**
* **$1,000 → Treasury (20%)**
***
Earn Vault Allocation
The Earn Vault allocation increases depositor yield.
Funds allocated to Earn Vaults are transferred to the vault reward distribution system and incorporated into the vault’s total assets.
This increases the value per share and directly benefits depositors without introducing inflation or dilution.
This mechanism allows liquidation activity to function as a source of real yield for capital providers.
***
Buy and Burn Allocation
The Buy and Burn allocation is used to acquire Horizon tokens on the open market.
Acquired tokens are permanently removed from circulation.
This creates continuous buy pressure and reduces total circulating supply, linking protocol usage to token scarcity.
***
Treasury Allocation
The Treasury allocation strengthens the protocol’s balance sheet.
Treasury funds provide operational runway, risk buffer, and strategic capital for liquidity provisioning, integrations, and future development.
This improves protocol resilience and long-term sustainability.
***
Combined Liquidation Revenue Model
Each liquidation event generates protocol revenue from both:
* Liquidation Fee
* OEV Reward
These revenue sources are additive.
This ensures that liquidations contribute to:
* Increased depositor yield
* Continuous token supply reduction
* Treasury growth
This design aligns protocol usage with protocol strength and creates a self-reinforcing economic structure.
***
Design Outcome
This architecture ensures that liquidation activity functions as a continuous source of protocol revenue.
Liquidations strengthen depositor yield, reduce token supply, and grow the treasury simultaneously.
---
# Agent Instructions: Querying This Documentation
If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.
Perform an HTTP GET request on the current page URL with the `ask` query parameter:
```
GET https://trader-li.gitbook.io/horizon-protocol/earn-and-borrow/liquidation-fee-and-oracle-extractable-value-oev-revenue-distribution.md?ask=
```
The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.
Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.