If a DeFi lending position is underwater, first check the exact protocol’s live risk metric and market rules. “Underwater” is not a universal DeFi status: Aave uses Health Factor, Compound v2 reports account liquidity or shortfall, and Compound III applies market-specific liquidation collateral factors. If the protocol says liquidation is possible, compare the supported ways to reduce that risk—usually repaying debt or adding eligible collateral—before signing a transaction.
What “underwater” means in DeFi lending
People use “underwater” to mean a lending position has too little eligible collateral to safely support its debt. Protocols do not share one threshold or metric, so a token balance, a falling collateral price, or a percentage shown by a third-party tracker is not enough to establish liquidation status. Check the official interface for the exact protocol version, chain, market, account, and assets.
Liquidation eligibility can change as collateral prices, debt value, or accrued interest change. A position that is currently above a liquidation boundary can approach it quickly; an action that improves the metric does not eliminate market, oracle, interest-accrual, or smart-contract risk.
What to do first
- Identify the exact position. In the official protocol interface, confirm the protocol and version, chain, market, wallet or account address, collateral assets, and debt assets. A ticker alone may not identify the relevant market.
- Read the protocol’s own live metric. On Aave, check Health Factor and the relevant reserve parameters. On Compound v2, check account liquidity or shortfall. On Compound III, check the account against the market’s liquidation collateral factor. Do not substitute one protocol’s threshold for another’s.
- Check what actions are supported for this market. If the position can still be adjusted, determine whether the interface accepts a debt repayment, additional collateral, or another route. Confirm the asset and operation are supported before preparing a transaction.
- Compare the practical trade-offs. Consider how each action changes the protocol’s metric, whether you already hold the required asset, and whether a swap, approval, or additional transaction is needed. Use current quotes to assess fees and slippage; those costs and execution conditions depend on the transaction and cannot be assumed from protocol mechanics alone.
- Review the transaction before signing. Verify the chain, account, asset, amount, destination or contract, approvals, any quoted swap route, and displayed network and protocol fees. A pending transaction is not proof that the position has improved.
- Recheck the account after execution. Once the transaction confirms, read the protocol metric again. Do not infer the result solely from wallet balances.
- If liquidation has occurred or is underway, inspect the transaction and account state. Liquidation can repay debt while transferring or absorbing collateral under that market’s rules. Do not assume collateral can be recovered or that a remaining balance will be positive.
How the main protocol metrics differ
Aave: Health Factor
Aave defines Health Factor as:
Health Factor = (Total Collateral Value × Weighted Average Liquidation Threshold) ÷ Total Borrow Value
Free tools Windows power users keep installed
One-click scans. No signup required.
#1 Best Overall
- Effortlessly build your crypto portfolio via the all in one Ledger Wallet app: buy, sell, send, receive, swap, stake and more across popular blockchains. 15,000+ coins & tokens in a single dashboard. Keep a close eye on the market. Compare service providers. Track performance. Get timely alerts. Build your portfolio with confidence.
- Effortlessly build your crypto portfolio via the all in one Ledger Wallet app: buy, sell, send, receive, swap, stake and more across popular blockchains. 15,000+ coins & tokens in a single dashboard. Keep a close eye on the market. Compare service providers. Track performance. Get timely alerts. Build your portfolio with confidence.
- Enjoy Bluetooth connectivity, iOS access, and hours of battery use with this mobile-first, secure backup signer. Freedom you can depend on.
- Genuine Check: confirm your signer is authentic during setup with the Ledger Wallet app.
- Protect your signer: keep it in mint condition at all times with a bespoke Pod or Case to avoid scratches and everyday wear and tear.
Aave’s official Health Factor & Liquidations documentation says a Health Factor below 1 makes a position eligible for liquidation. The threshold is weighted across collateral and set for each asset through governance. The page’s illustrative calculation—$10,000 in ETH collateral at an 80% liquidation threshold against a $6,000 GHO borrow—produces a Health Factor of 1.333; it is an example, not a statement of current market parameters.
Aave states, “There is no universally safe health factor, as this depends on the volatility and correlation of your assets.” A higher metric may provide more room, but it is not a guarantee against liquidation.
Rank #2
- Proven security at scale: Over 9 years and millions of cards issued with no known remote hacks, while military‑grade EAL6+ security keeps your private keys locked inside the chip. Your cryptocurrencies stay strongly protected from online attackers.
- Tap once to manage your entire crypto wallet across 90 blockchains - no USB cables or Bluetooth, no batteries, no setup. Access 14,100+ coins & tokens, DeFi, NFTs, and staking instantly from your phone
- Smart backup: Use your second Tangem Wallet as your Backup keys with end‑to‑end encryption; no more papers, pictures. If one card is lost, the remaining can still restore full access, with an optional seed phrase available for advanced users.
- Engineered to last up to 25 years: Waterproof (IP69K), shockproof and tested for extreme temperatures from −25°C to 50°C. A durable cold wallet with long‑term protection and independently audited security.
- Trusted by 6 million users worldwide - buy, sell, swap, stake, and spend cryptocurrency directly. The secure offline storage wallet designed for how people actually use crypto wallets
Compound v2: account liquidity or shortfall
Compound v2’s Comptroller reports account liquidity or shortfall. A nonzero shortfall means the account is below its collateral requirement and is subject to liquidation. Liquidators repay some or all of an outstanding borrow and receive discounted collateral, subject to a close factor for an individual borrow. See the Compound v2 Comptroller documentation for the mechanism.
Compound III: liquidation collateral factor
Compound III distinguishes a borrow collateral factor from a liquidation collateral factor. If an account’s borrow exceeds its liquidation limit, a liquidator may absorb the account. The user relinquishes supplied collateral and receives base-asset value minus the configured liquidation penalty. Factors and supported assets are specific to each market. See Compound III liquidation documentation and Compound III collateral and borrowing documentation.
Rank #3
- Secure Element Protection: EAL6+ certified secure element with passphrase protection provides robust physical security for your digital assets
- User-Friendly Interface: Two-button pad device interface designed for straightforward and intuitive operation
- Bright OLED Display: Clear and bright OLED screen enables easy and secure hands-on verification of transactions
- On-Device Security Features: PIN and passphrase protection enabled directly on the device for enhanced security
- Open-Source Transparency: Fully open-source design allows for transparent security verification and community auditing
Ways to improve a position—and what they do not guarantee
Repay some debt
Repaying debt reduces the borrow balance and may improve the protocol’s risk metric. Aave documents repayment with the borrowed token or same-underlying aTokens; its liquidity-pool documentation also describes periphery contracts that may facilitate repayment using other tokens. That does not mean every market or interface supports repayment with an arbitrary asset. Confirm the route and asset in the specific interface before approving or signing.
Add eligible collateral
Supplying collateral can improve a position when the protocol accepts that asset for the market and account. Compound III describes supplying collateral as a way to improve the account relative to its liquidation limit. More collateral remains exposed to market and protocol risks, and its value or eligibility can change.
Rank #4
- UNPARALLELED SECURITY: Protect your assets with Trezor Safe 5's NDA-free EAL 6+ Secure Element, offering robust defense and complete transparency.
- EFFORTLESS NAVIGATION: Experience seamless crypto management with the vibrant color touchscreen, designed for intuitive and user-friendly interactions.
- ENHANCED USER EXPERIENCE: Enjoy tactile confirmation with Trezor Touch Haptic Engine, making each interaction precise and engaging.
- SUPPORTS 1000s OF COINS & TOKENS: Securely handle thousands of assets, including Bitcoin, Ethereum, and more, all in one wallet.
- EASY ASSET MANAGEMENT: Monitor and transact seamlessly with Trezor Suite, our user-friendly desktop and mobile app
Choose based on the position, not a universal rule
Neither repayment nor adding collateral is always the better response. The choice depends on which assets you have, which actions the exact market supports, how each action changes its own risk metric, and the current cost and likelihood of execution. A route involving a swap can add price impact, slippage, approval requirements, and transaction-ordering uncertainty.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What happens if liquidation occurs
The mechanism depends on the protocol and market; “liquidation” does not describe one universal outcome.
Recommended Free Tools
Best Value
- All your digital assets in one place. You can manage thousands of crypto including Bitcoin, Ethereum, Solana, Tether and more.
- Defend your identity against hackers: secure your online accounts with passwordless, hardware backed, 2FA logins for all your favorite apps and websites.
- Connectivity: USB-C cable connection only. No Bluetooth.Compatible with the Ledger Wallet crypto app, both desktop (Windows, macOS, Linux) and mobile (Android only). Not compatible with iOS.
- Protect your digital assets with the industry's best security: keep your private keys offline in your private signer, battle-tested by the Donjon's white hat hackers, CC EAL 6+ certified Secure Element, constantly updated Ledger OS.
- Effortlessly build your crypto portfolio via the all in one Ledger Wallet app: buy, sell, send, receive, swap, stake and more across popular blockchains. 15,000+ coins & tokens in a single dashboard. Keep a close eye on the market. Compare service providers. Track performance. Get timely alerts. Build your portfolio with confidence.
- Aave: a liquidator repays debt and receives collateral with a liquidation bonus. Aave’s help material describes partial versus full liquidation conditions depending on Health Factor and position size, while its Pool reference describes a 50% close factor for the behavior documented there. These contexts should not be collapsed into a universal cap; check the current rules for the market and version.
- Compound v2: a liquidator repays borrowing and receives discounted collateral, subject to the applicable close factor.
- Compound III: a liquidator can absorb an account beyond its liquidation limit; collateral is relinquished and the account receives base-asset value less the configured penalty.
Because the mechanisms differ, do not assume the same close factor, bonus, penalty, or recovery option across protocols—or even across all documentation contexts for a protocol.
Automation and monitoring
Manual monitoring in the protocol’s official interface is the starting point: check the live metric and relevant market parameters rather than relying on an alert that may use different data or update timing. Aave’s FAQ mentions repay-with-collateral and DeFi Saver auto-repay in its interface context. Automation is optional, and neither a tool mention nor a configured strategy guarantees that liquidation will be prevented. Confirm current chain, asset, market, permission, trigger, and fee support before relying on a third-party service.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
