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Aave liquidation becomes possible when a position’s health factor (HF) falls below 1. A permissionless liquidator then repays some or all of the borrower’s eligible debt and receives collateral, plus the liquidation bonus configured for that reserve and market. The liquidation threshold is one of the risk parameters used to calculate HF; it is not a single platform-wide percentage and it is different from loan-to-value (LTV).
This distinction matters because a position can be below its borrowing limit yet still be approaching liquidation, or appear comfortably collateralized while a volatile asset price moves it below the liquidation boundary. The exact outcome depends on the Aave version, deployed market, reserve configuration, oracle prices and the debt that has accrued.
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What Aave liquidation means
Aave lending positions are collateralized: you supply assets, borrow other assets against them, and remain responsible for the debt while interest accrues. Aave continuously evaluates whether the collateral still provides enough value relative to the debt. That evaluation is summarized by the health factor.
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A partial liquidation can leave both debt and collateral in the account. Aave’s V3 overview says the transaction raises the position’s HF, reducing immediate risk, but it does not necessarily erase the position.
How the health-factor calculation works
Aave defines health factor as:
Health factor = (total collateral value × weighted-average liquidation threshold) ÷ total borrow value
Collateral and debt values are based on the market’s oracle prices. Debt balances also grow as interest accrues. The weighted-average liquidation threshold combines the thresholds of the individual collateral reserves according to their value in the position.
| Input | What it represents | How it affects HF |
|---|---|---|
| Total collateral value | Oracle-priced value of assets supplied as collateral | A fall lowers HF; an increase raises it, all else equal |
| Weighted-average liquidation threshold | Collateral-value-weighted risk limit for the reserves used | A higher weighted threshold raises HF for the same collateral and debt |
| Total borrow value | Current value of borrowed assets, including accrued interest | A rise lowers HF |
Aave’s numerical example
Aave illustrates the arithmetic with $10,000 of ETH collateral, an 80% liquidation threshold and a $6,000 GHO borrow:
($10,000 × 0.80) ÷ $6,000 = 1.333
That 1.333 result is an example, not a recommendation or a universal threshold. A position’s acceptable buffer depends on the volatility and correlation of the assets involved.
Liquidation threshold versus LTV
Loan-to-value (LTV) is the maximum percentage of a collateral asset’s value that can normally be borrowed when opening or increasing a position. If an asset has a 75% LTV, a user generally cannot borrow more than $750 against $1,000 of that asset under the applicable market rules.
Liquidation threshold is the percentage used to determine when the position has become unsafe enough to be liquidated. It feeds the weighted-average term in the HF formula. The threshold is usually higher than the initial LTV for a reserve, creating room between the borrowing limit and liquidation eligibility, but the exact values are reserve-specific.
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Neither number is a promise that a position can withstand a particular price drop. A multi-asset account uses weighted values, and debt and collateral may move differently. Always treat the live reserve configuration as authoritative for the market you are using.
What can push a position below HF 1?
- Collateral prices fall: Oracle prices reduce the value supporting the debt.
- Borrowed-asset prices rise: The debt becomes more valuable relative to collateral.
- Interest accrues: The outstanding debt balance increases over time, even without a new borrow.
- Additional borrowing: Increasing debt raises the denominator of the HF calculation.
- Collateral withdrawal: Removing supplied collateral reduces the numerator.
Adding collateral or repaying debt improves HF, provided prices and other balances do not move at the same time. There is no universally safe HF: a thinly traded or highly volatile collateral asset needs a larger practical buffer than a relatively stable, closely correlated pair.
What happens in a liquidation transaction?
- HF crosses the eligibility boundary. Once the position’s HF is below 1, it can be targeted by a liquidator.
- A liquidator selects the debt and collateral reserves. The caller chooses an eligible debt asset to repay and a collateral asset to receive, subject to the protocol’s reserve rules and the collateral available in the account.
- The liquidator repays debt for the borrower. The amount is the transaction’s
debtToCover, limited by the applicable close-factor and other rules. Aave’s Pool documentation describes the caller as repaying the borrower’s debt when HF is below 1. - Collateral is transferred with the bonus. The liquidator receives a corresponding amount of collateral plus the reserve’s liquidation bonus. In Aave V3, the Pool reference allows the liquidator to receive the underlying collateral or equivalent aTokens, depending on the call.
- The account is left in a safer state, if possible. The repayment and collateral reduction are intended to raise HF. A partial liquidation leaves the borrower with the remaining debt and collateral; a full liquidation can clear the position if enough eligible assets are available.
The bonus and threshold are not universal Aave constants. They are configured per reserve and market and can change as risk parameters are governed. A liquidator must also account for transaction costs, available liquidity and the value of the collateral received.
V3 liquidation amounts and the close-factor detail
Aave’s borrower-facing V3 guidance gives conditional limits that are more detailed than the short close-factor description in the V3 Pool reference. The guidance says the following:
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|---|---|
| HF above 0.95, and both collateral and debt are at least $2,000 | Up to 50% of total debt |
| HF at or below 0.95, or either collateral or debt is below $2,000 | Up to 100% of total debt |
| After a proposed partial liquidation, less than $1,000 of either collateral or debt would remain | The position must be fully cleared rather than left with that residual amount |
The V3 Pool smart-contract reference summarizes the close factor as currently 0.5, meaning a maximum 50% liquidation. Because the two official pages present the rule at different levels of specificity, do not assume that one simplified sentence covers every deployed market. For a real transaction, check the deployed Pool contract, the market’s current configuration and the account’s values at execution time.
The dollar figures in this guidance are protocol conditions, not estimates of a position’s liquidation cost. Prices can move between the time a transaction is prepared and the time it is mined.
What the borrower loses and keeps
The borrower loses the collateral transferred to the liquidator and the portion of debt repaid on the borrower’s behalf. The liquidation bonus means the collateral value handed over is greater than the debt value repaid, according to the reserve’s configured incentive. The borrower does not receive that bonus; it is the liquidator’s compensation for taking execution and market risk.
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In a partial liquidation, the borrower keeps the remaining collateral and remains liable for the remaining debt. A lower HF after a second price move can make the account eligible again. A full liquidation may remove all eligible collateral and repay all debt, but the exact result depends on balances, reserve rules and available collateral.
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Two positions with the same dollar collateral and debt can have different HF values because their collateral reserves have different liquidation thresholds. Their liquidation outcomes can also differ because bonuses, oracle prices, volatility and available liquidity are reserve-specific.
| Comparison factor | Why it matters | What to verify |
|---|---|---|
| Liquidation threshold | Changes the weighted-average threshold in HF | Current reserve value in the specific Aave market |
| Liquidation bonus | Determines the collateral incentive paid to liquidators | Reserve configuration and any market-specific updates |
| Protocol version | V3 and V4 describe different risk-management behavior | Which deployed Pool and market the position uses |
| Collateral and debt prices | Determine current collateral and borrow values | Oracle-priced values and price volatility |
| Asset correlation | Controls how likely collateral and debt values are to diverge | Whether both sides can move adversely together |
Do not copy a threshold or bonus from one reserve into another. Aave surfaces these values through on-chain views and market interfaces, but a displayed value is meaningful only with its asset, network, reserve and timestamp.
How V4 changes the risk-configuration question
Aave V4 position-condition documentation describes a dynamic configuration model. When a position first becomes risk-bearing, the protocol can snapshot per-reserve collateral factors, maximum liquidation bonuses and protocol fees for that position. The documentation also describes updates after specified risk-increasing actions or manual updates.
That model is materially different from simply carrying a V3 close-factor or bonus assumption forward. V4 users should consult the applicable V4 position-condition rules and the live market configuration rather than infer behavior from V3 examples. The same HF boundary concept should not be used as a substitute for checking the version-specific liquidation mechanics.
How borrowers can monitor and protect a position
- Identify the exact market and version. Record the network, Aave deployment, Pool address and reserve names. V3 and V4 rules are not interchangeable.
- Check HF and its components. Review collateral value, debt value and the weighted thresholds rather than watching HF alone. Note which asset contributes most of the collateral value.
- Stress-test plausible price moves. Consider a drop in each major collateral asset, a rise in each borrowed asset and further interest accrual. Correlated assets can move together, so do not rely only on historical calm.
- Choose an intervention before HF reaches 1. Repaying debt, adding collateral or reducing exposure can restore buffer. A transaction may need extra network fee, available liquidity and a slippage allowance.
- Recheck after every action. Confirm that the transaction succeeded and that the displayed HF, debt and collateral balances changed as expected. A price move during confirmation can alter the result.
- Use automation cautiously. Aave borrower guidance points to health-factor simulation and names automated repayment tools, but automation cannot eliminate oracle, network, liquidity or transaction-execution risk. Verify permissions and trigger conditions before relying on any service.
Common mistakes and how to avoid them
Treating LTV as the liquidation trigger
LTV controls how much can be borrowed; HF, which incorporates liquidation thresholds, controls liquidation eligibility. Use the correct metric for the question.
Assuming one bonus applies everywhere
Bonuses are reserve- and market-specific. A percentage copied from a different asset or network can produce a wrong estimate of the collateral that may be taken.
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Ignoring accrued interest
Debt grows even when collateral prices are unchanged. Include the current balance, not only the amount originally borrowed.
Relying on a single displayed dollar value
Oracle prices, network latency and volatile markets can change collateral and debt values between screen refreshes and transaction execution.
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Applying V3 rules to V4
V4 documents dynamic position conditions, including snapshots and updates. Confirm the version-specific behavior before planning a liquidation response.
Assuming partial liquidation always leaves a position open
Under the detailed V3 borrower guidance, the $1,000 residual condition can require full clearance instead of a partial transaction. Small positions therefore need special attention.
Practical interpretation of HF readings
An HF well above 1 indicates more calculated support than debt, but it does not guarantee safety. The useful question is how much adverse movement the position can withstand before HF reaches 1, given the assets’ volatility and correlation. A diversified position may have a different practical risk than a position concentrated in one volatile reserve even when the displayed HF is identical.
At HF exactly 1, treat the account as being at the boundary rather than protected by a cushion. The protocol’s eligibility statement is “below 1,” yet prices, interest and oracle updates can move the account across that boundary rapidly. A borrower who waits for liquidation eligibility may have fewer choices and may lose collateral through the bonus mechanism.
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