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Aave liquidation is triggered by a health factor below 1, not by one universal collateral-percentage rule. The health factor combines your collateral value, each reserve’s liquidation threshold and your total debt. When the ratio drops below 1, a permissionless liquidator can repay eligible debt and claim collateral plus the applicable liquidation bonus. Aave V3 then limits how much can be closed in many cases, while Aave V4 introduces position-specific risk snapshots that must be checked separately.
What the liquidation threshold means
The liquidation threshold is a risk parameter assigned to each collateral asset in an Aave market. It represents the point at which that asset’s value is considered insufficient to secure borrowing for liquidation-risk purposes. A position holding several collateral assets uses a weighted-average liquidation threshold in its health-factor calculation, so the result depends on both the assets and their values.
Health factor is the liquidation test
Aave defines health factor (HF) as:
HF = (total collateral value × weighted-average liquidation threshold) ÷ total borrow value
The protocol uses oracle prices for asset values, while debt balances increase as interest accrues. If the result is above 1, the position is not currently eligible for liquidation under the standard rule. If it falls below 1, the position becomes eligible.
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Liquidation threshold is not LTV
Loan-to-value (LTV) and liquidation threshold are related but serve different purposes. LTV is the maximum percentage of collateral value that can be borrowed when a position is created or increased. The liquidation threshold is the risk limit used to determine when an existing position can be liquidated. A market can therefore allow borrowing up to one percentage while using a higher or otherwise different threshold for liquidation eligibility.
Worked example
Aave’s example supplies $10,000 of ETH with an 80% liquidation threshold and borrows $6,000 of GHO:
HF = ($10,000 × 0.80) ÷ $6,000 = 1.333
This is illustrative arithmetic, not a universal safe level or a recommendation to borrow at that ratio. The relevant threshold, prices and debt must be checked for the specific reserve and market.
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How a position reaches liquidation
Health factor changes continuously as market conditions and debt change. A position can move toward the liquidation boundary through several mechanisms:
- Collateral price decline: if the oracle value of supplied collateral falls, the numerator of the health-factor formula falls.
- Debt value increase: if the borrowed asset appreciates relative to the collateral, the debt’s value in the account’s reporting currency rises.
- Accrued interest: borrowing interest increases the outstanding debt balance, reducing HF even when market prices are unchanged.
- Collateral withdrawal: removing supplied collateral reduces the value securing the debt.
- Borrowing more: adding debt increases the denominator and lowers HF.
Adding eligible collateral or repaying debt generally improves HF. Aave does not publish one universally safe HF because an appropriate buffer depends on asset volatility, correlation between collateral and debt, liquidity and the user’s tolerance for rapid price moves.
What happens during an Aave liquidation
- HF falls below 1. The position becomes eligible for liquidation under the applicable Aave market rules. Eligibility does not mean that every asset will be seized immediately or that the entire position is automatically closed.
- A liquidator selects the debt and collateral. Liquidation is permissionless. A liquidator chooses an eligible debt asset to repay and a collateral asset to receive, subject to the reserve configuration, available balances and contract rules.
- The liquidator repays debt for the borrower. In Aave V3’s Pool reference, the liquidation call repays the specified
debtToCoveramount on behalf of the user. The liquidator supplies that repayment transactionally to the protocol. - Collateral is transferred with a bonus. In return, the liquidator receives a corresponding amount of the borrower’s collateral plus the reserve’s liquidation bonus. Aave V3 allows the returned value to be the underlying collateral or equivalent aTokens, depending on the call and reserve configuration.
- The position is left with less debt and collateral. Aave’s V3 overview states that liquidation raises the position’s HF. A partial liquidation can leave the borrower with both debt and collateral, so the borrower is not necessarily debt-free after one transaction.
Why the bonus exists
The liquidation bonus compensates liquidators for taking execution, price and transaction-cost risk while restoring the protocol’s solvency. It is reserve-specific, not a single Aave-wide percentage. The applicable bonus and liquidation threshold are exposed through on-chain reserve configuration and can differ by asset, market and protocol version. Do not apply a percentage from one reserve to another.
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Aave V3 liquidation amounts and close-factor rules
Aave’s borrower-facing V3 guidance gives more detailed amount limits than the short Pool reference. Under that guidance, the amount that may be liquidated depends on the health factor and on the size of the position:
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|---|---|---|
| HF above 0.95, with collateral and debt each at least $2,000 | Up to 50% of total debt | A partial liquidation must leave at least $1,000 of both collateral and debt; otherwise the position must be fully cleared. |
| HF at or below 0.95 | Up to 100% of total debt | The same $1,000 residual rule applies where a partial close is attempted. |
| Either collateral value or debt value below $2,000 | Up to 100% of total debt | The position may need to be fully cleared if a partial close would leave less than $1,000 of collateral or debt. |
Aave’s V3 Pool smart-contract reference separately summarizes the close factor as currently 0.5, meaning a maximum 50% liquidation. The borrower help page includes the 0.95 and $2,000 exceptions that are not stated in that shorter reference. Treat this as a documentation-detail difference, not as permission to combine the passages into one universal rule. For a real transaction, check the deployed Pool contract and current market configuration.
What the $1,000 residual condition means
The borrower guidance says a partial liquidation must leave at least $1,000 worth of collateral and at least $1,000 worth of debt. If a proposed partial close would leave either side below that amount, the position must be fully cleared instead. These are dollar-value conditions described by the guidance, so the result can change with oracle prices during execution.
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How the liquidation threshold differs across assets and markets
There is no meaningful way to compare two collateral assets using threshold alone. A useful comparison includes every variable that affects the borrower’s actual HF:
| Comparison factor | Why it matters | What to verify |
|---|---|---|
| Liquidation threshold | Sets each asset’s contribution to the weighted-average threshold. | Current reserve value for the exact Aave market; a universal figure is not established. |
| Liquidation bonus | Determines how much collateral a liquidator receives above the repaid debt value. | Reserve-specific bonus and any protocol fee; a universal percentage is not established. |
| Protocol version | V3 and V4 can apply different risk and liquidation mechanics. | Whether the position is governed by the deployed V3 or V4 contracts. |
| Oracle price and volatility | Fast price moves can push HF below 1 before a borrower can react. | Current collateral and debt prices, liquidity and volatility. |
| Asset correlation | Collateral and debt moving together can produce a different risk profile from unrelated assets. | How both assets historically and currently respond to market stress; no universal safe HF follows from correlation alone. |
| Resulting health factor | This is the position-level liquidation test. | Recalculate with current balances, prices, thresholds and accrued interest. |
V3 and V4 are not interchangeable
What V3 documentation covers
V3 documentation describes reserve-level liquidation thresholds and bonuses and uses close-factor-limited liquidations. The borrower-facing amount rules above are specifically presented for V3 behavior. They should not be assumed for every Aave deployment, fork or future version.
What V4 position conditions add
Aave V4 documentation describes dynamic risk configuration that snapshots a position’s per-reserve collateral factor, maximum liquidation bonus and protocol fee when the position first becomes risk-bearing. It also documents updates after specified risk-increasing actions or manual updates. This means a V4 position may be governed by configuration associated with its own risk state rather than by simply copying a current V3 reserve rule. Before interpreting a V4 liquidation, identify the market, the position’s snapshot state and the documented update trigger that applies.
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How borrowers can monitor and improve health factor
- Open the position dashboard for the exact market. Record collateral balances, debt balances, displayed HF and the assets used as collateral.
- Check reserve parameters on-chain. Confirm the current liquidation threshold, liquidation bonus, close-factor behavior and any protocol fee for each reserve. Do not rely on a value copied from another Aave market.
- Stress the prices. Consider what happens if collateral falls, debt rises, or both move at once. Include interest accrual rather than treating today’s debt as fixed.
- Keep a deliberate buffer above 1. The required margin depends on volatility and correlation; a buffer that looks large for a stable pair may be inadequate for a volatile or thinly traded asset.
- Reduce risk before HF approaches 1. Repay part of the debt, add eligible collateral or both. Each action changes the formula in a different way, so verify the resulting HF after the transaction confirms.
- Plan for execution delays. Oracle updates, network congestion, slippage and transaction fees can affect the amount received or the time available to react. A displayed HF is not a guarantee that liquidation cannot occur in the next block.
Illustrative price and interest effects
Using Aave’s $10,000 ETH, 80% threshold and $6,000 GHO example, the starting HF is 1.333. If ETH’s oracle value fell to $9,000 while debt stayed at $6,000, the arithmetic would become ($9,000 × 0.80) ÷ $6,000 = 1.20. If interest and price movement then increased the debt to $6,200, the ratio would be approximately 1.16. These calculations show why HF can deteriorate without a new borrow transaction; they are illustrations of the formula, not forecasts or safety recommendations.
What liquidators and borrowers should verify before a transaction
- The exact Aave market and protocol version.
- The oracle prices and timestamp or update behavior for both collateral and debt assets.
- The position’s current HF after accrued interest.
- The reserve-specific liquidation threshold and bonus.
- The amount of debt eligible for liquidation under the deployed contract.
- Whether V3’s $0.95, $2,000 and $1,000 conditions apply, rather than assuming the simplified 50% close-factor text.
- Whether collateral is returned as the underlying asset or equivalent aTokens.
- Gas, slippage and available liquidity for the intended repayment and collateral transfer.
Bottom line
Aave liquidation is a health-factor event. The threshold for each collateral reserve feeds a weighted-average value into HF; once HF falls below 1, a liquidator can repay eligible debt and receive collateral plus a reserve-specific bonus. Price declines, debt appreciation and interest accrual can all lower HF, while repayment and additional collateral can raise it. V3 close-factor and dust rules are conditional and documented at different levels of detail, and V4 adds position-specific risk configuration. For any live position, use the deployed market’s current on-chain parameters instead of a universal percentage or a rule copied from another version.
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