Aave V3 uses oracle prices to value collateral and debt, and those values help determine a position’s health factor and whether it is eligible for liquidation. If the health factor falls below 1, Aave’s V3 overview says the position is eligible—but neither a low health factor nor an oracle or network incident guarantees that a liquidation transaction will occur. The exact oracle, safeguards, and liquidation rules depend on the market, chain, reserve, and deployed implementation.
How does Aave V3 get asset prices?
Each Aave reserve is associated with an oracle contract, and Aave Governance selects the oracle, according to Aave’s oracle documentation. Aave identifies Chainlink Price Feeds and the Correlated Assets Price Oracle (CAPO) among the oracle types used on production markets. CAPO is intended for strongly correlated assets—for example, a wrapped asset priced in relation to its underlying. Which source and configuration apply is a reserve- and chain-specific question, not a universal property of “Aave V3.”
Aave also maintains price-feed adapters for cases where plain Chainlink pricing does not meet Aave’s risk requirements. The repository establishes that adapters exist and why they may be used; it is not a complete inventory of adapters currently active in every market.
How do oracle prices affect a position’s health factor?
The health factor reflects collateral value adjusted by liquidation thresholds relative to outstanding debt. Aave’s V3 overview says a health factor below 1 makes a position eligible for liquidation. The risk framework describes the calculation using collateral values, liquidation thresholds, and debt; accrued interest can also change a position’s debt over time. A change in an oracle-reported price can therefore change the health factor even when the user has not made a new transaction.
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A price error could make collateral appear more or less valuable than it is, which can distort the displayed health factor and liquidation eligibility. That does not establish that a particular position will be liquidated: eligibility and execution are different. A liquidator must submit a transaction, and its execution depends on market conditions and transaction activity. Aave’s documentation does not establish that every oracle incident causes liquidation or that any specific position will be affected in a particular way.
How does Aave V3 liquidation work?
A liquidator repays some or, under applicable rules, potentially all of a borrower’s debt and receives collateral under the relevant reserve’s liquidation rules and incentives. The collateral amount reflects the configured liquidation incentive or penalty; it is not a single universal bonus across all Aave markets. The relevant rules are tied to the deployed implementation and reserve parameters.
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Close-factor behavior is especially important to check rather than assume. Aave’s documentation describes version-specific behavior:
| Source and scope | What it describes | How to apply it |
|---|---|---|
| Aave DAO V3 risk framework | Describes full liquidation as a position approaches insolvency, specifying health factor below 0.95. | Do not treat this description as a universal close-factor rule for every deployed V3 market. |
| Aave V3.3 feature documentation | Describes a default 50% close factor and a maximum of 100% below a health-factor threshold, as well as a change to how close factor applies across a position. | The behavior is version-specific; confirm the implementation and applicable rules in the market being used. The feature document’s description should not be generalized to all V3 deployments. |
What happens if an oracle or L2 sequencer goes down?
Aave’s PriceOracleSentinel documentation describes a sentinel that checks oracle health to determine whether certain operations are allowed. It was designed especially for L2 sequencer downtime. Aave documents a grace period for liquidation after an oracle recovers, and borrowing restrictions in specified conditions.
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The sentinel is not a promise that every operation will be paused during every oracle problem, nor does the documentation establish identical configuration or grace periods across markets. A particular market’s deployed contracts and settings determine what is actually enforced. Do not infer a market’s protection—or its precise recovery timing—from another chain’s configuration.
Which reserve parameters affect exposure and liquidation?
Aave’s risk framework describes several controls that can affect how much users may borrow, how positions are valued, and how losses are managed. They are calibrated by asset and can vary by market.
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- Loan-to-value (LTV): informs how much a user may borrow against supplied collateral.
- Liquidation threshold: contributes to collateral’s value in the health-factor calculation and the point at which a position becomes eligible for liquidation.
- Liquidation penalty or incentive and liquidation factor: shape liquidation economics and the collateral or debt amounts involved under the applicable rules.
- Supply and borrow caps: limit exposure to a reserve by constraining supplied or borrowed amounts.
- Isolation mode and siloed borrowing: restrict which assets or combinations of borrowing can be used in certain risk configurations.
- eMode: applies a specialized configuration for eligible correlated assets; eligibility and parameters are market-specific.
These are not fixed protocol-wide constants. A parameter seen for one token, chain, or market should not be assumed to apply to another.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How can you check the risk for a specific Aave position?
- Identify the exact market and chain. Confirm the deployment where the position exists; similarly named markets can have different contracts and settings.
- List the position’s collateral and debt reserves. Check the assets actually supplied and borrowed, not just the market’s general overview.
- Check each reserve’s oracle setup and current parameters. Use official market information or the relevant live contracts to verify the oracle or feed, any applicable adapter or CAPO configuration, LTV, liquidation threshold, incentive, and restrictions.
- Confirm the deployed implementation’s liquidation and sentinel rules. Check the applicable close-factor behavior and whether a PriceOracleSentinel is configured, including the conditions and timing it enforces.
- Monitor the position’s health factor and debt. A health factor can change with oracle prices and accrued interest; an observed value is not a guarantee that it will remain unchanged or that a transaction will execute in time.
The available Aave documentation does not provide a complete current inventory of oracle addresses, feed pairs, sentinel settings, CAPO bounds, or risk parameters for every chain and reserve. Those details need to be verified for the particular live market rather than inferred from protocol-wide descriptions.
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What risks remain?
Aave’s risk overview identifies smart-contract, oracle, collateral, network, and bridge risks. It describes measures such as audits and reviews, a bug bounty, decentralized feeds, governance, and risk parameters as mitigations—not guarantees. Feeds can fail or be compromised, collateral can lose value or liquidity, contracts can contain vulnerabilities, and networks or bridges can experience problems. Oracle safeguards and liquidation controls reduce or manage particular risks; they do not eliminate them.
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