When you borrow against crypto you already own, the loan stays open only while the collateral behind it keeps enough value. Prices move around the clock and interest keeps adding to what you owe, so a comfortable borrow can drift toward forced repayment. Lending protocols track that risk with one number that compares discounted collateral with your debt.
On Aave, that number is the health factor, a safety ratio for your whole borrow position. A reading below 1 makes the position eligible for liquidation, and at that point any third party can repay part of your debt and take some of your collateral with a bonus on top (source: Aave Help, Health Factor & Liquidations).
If you are new to the shared lending pools, read how Aave works and what Aave is first. The health factor makes sense once you know that the tokens you supply are the collateral behind every borrow.
What is the health factor on Aave?
The health factor tells you how far your collateral can fall, or your debt can rise, before an Aave borrow becomes liquidatable. It equals total collateral value times the weighted average liquidation threshold, divided by total borrow value. A reading of 1.5 means your discounted collateral is half as large again as your debt.
The standard example is a $10,000 supply of ETH with an 80% liquidation threshold against a borrow of $6,000 worth of GHO, which gives a health factor of 1.333 (source: Aave Help, Health Factor & Liquidations). The threshold works as a discount on the collateral, so the protocol counts only $8,000 of your $10,000 worth of ETH. Because your $6,000 of debt sits below that $8,000, the reading stays above 1.
health factor = (10,000 × 0.80) / 6,000 = 1.333
The weighted average matters once you supply more than one collateral token, because each collateral's value is weighted by its own liquidation threshold before the totals are combined. Suppose you add $5,000 of a volatile token to the ETH above, at the 65% threshold Aave's V3 risk framework set for its most volatile assets (source: Aave, Risk Parameters). Your adjusted collateral becomes $8,000 plus $3,250, or $11,250. Against the same $6,000 of debt, your health factor rises to 1.875.
The most common mistake is to read a health factor under 1 as an early warning that leaves time to act. Below 1 is the trigger itself, so a liquidator can submit a transaction as soon as the protocol sees that reading. No grace period or notice comes first. The reading also covers the whole account in that market, which means the liquidator chooses which collateral to take. When your collateral tokens carry different bonuses, a liquidator can pick the one paying more, even if a different token caused the drop (source: Aave FAQ).
Once the reading itself is clear, the next step is to separate the two percentages behind it, because loan-to-value and the liquidation threshold do different work.
Loan-to-value and the liquidation threshold
Loan-to-value (LTV) is the maximum you can borrow against a collateral token when you open or add to a borrow, while the liquidation threshold (LT) is the higher percentage the health factor uses once the debt exists. Aave Governance sets both for each asset, and the gap between them is the buffer a new borrow starts with.
LTV sets the largest ratio at which you can open a new borrow. The liquidation threshold is the collateral ratio at which an existing borrow may be liquidated (source: Aave Help, Toggle Collateral Status). At a 75% LTV, for example, every 1 ETH of collateral value lets you borrow up to 0.75 ETH worth of another asset (source: Aave, Risk Parameters).
The gap between LTV and the threshold is a safety margin for borrowers. Aave's V3 risk framework, last revised in September 2023, ranked stablecoins and then ETH as the least volatile assets and gave them the highest settings at 75% LTV and an 80% threshold. The same framework set the most volatile assets at an LTV of 35% to 40% and a 65% threshold (source: Aave, Risk Parameters). Current values for each asset are set by governance and can differ, so check the live risk parameters before you borrow.
| Parameter | What it controls | When it applies |
|---|---|---|
| loan-to-value (LTV) | the largest new borrow against that collateral | when you open or increase a borrow |
| liquidation threshold (LT) | the discount used in the health factor | for as long as the borrow stays open |
| health factor | whether the position can be liquidated (below 1) | after every price update and interest accrual |
Suppose a collateral token has a 75% LTV and an 80% threshold, and you supply $10,000 of it. A $7,500 borrow sits exactly at the LTV limit, and the health factor at that moment is (10,000 × 0.80) / 7,500 = 1.067. That small margin above 1 is the entire buffer, so a modest drop in the collateral price can make the position liquidatable. A request to borrow $8,000 goes over the LTV limit, and the protocol refuses it even though $8,000 still equals the 80% threshold. Borrowers who swap the two percentages in their heads expect that extra $500 to be available, and it never is.
Before you open a borrow, decide how far below the LTV limit you want to stay, and keep that target in mind as you borrow on Aave. If your collateral and your debt are correlated assets such as two USD stablecoins, check whether Aave E-Mode applies. Each Efficiency Mode category sets its own LTV, liquidation threshold and liquidation bonus. Once you turn a category on, you can borrow only the assets inside it (source: Aave Help, Efficiency Mode (E-mode)).
Who can liquidate and what they take
Once your health factor falls below 1, anyone on the network can liquidate the position. The liquidator repays part of your debt in the borrowed asset and receives collateral worth the repaid amount plus a liquidation bonus, and that bonus is the extra cost you carry on top of the debt that was cleared.
Liquidation on Aave is permissionless, so no approval stands between an eligible position and the liquidator who repays it. Liquidators compete to be first, watching positions and reacting to oracle price changes. Successful liquidations often need custom-coded bots that monitor positions and submit transactions with high priority (source: Aave Help, Health Factor & Liquidations).
The liquidation threshold and the bonus are both set separately for each reserve, which is Aave's term for a single asset market in a pool (source: Aave Docs, Aave V3 Overview). The bonus depends on which asset you post as collateral. Look up the current rate for your collateral on Aave's risk parameters dashboard before you borrow (source: Aave FAQ).
Follow the ETH and GHO position from the first example through a sell-off. ETH falls until your collateral is worth $7,400, and the next oracle update puts the health factor at (7,400 × 0.80) / 6,000 = 0.987. A liquidator, often an automated bot, repays $3,000 worth of your GHO. At a 5% bonus, the rate Aave uses for ETH in its own liquidation examples, the liquidator receives $3,000 × 1.05 = $3,150 worth of your ETH (source: Aave FAQ). You are left with $4,250 worth of ETH against $3,000 of debt, a health factor of (4,250 × 0.80) / 3,000 = 1.133. The $150 difference is the penalty you paid for letting the reading slip under 1.
Liquidation is the risk you control through your own health factor. Oracle failures and smart contract bugs are risks you cannot manage from the dashboard, so weigh them with whether Aave is safe before you size a large borrow.
How much debt one liquidation can repay
Aave limits how much debt a single liquidation can repay, using both the health factor and the dollar size of the position. A large position just under 1 is usually closed in part, while a reading of 0.95 or lower, or a small position, can be cleared in full in a single transaction.
While your reading stays above 0.95 and your collateral and debt are each worth $2,000 or more, one liquidation can repay at most half of your total debt. Once the health factor reaches 0.95 or lower, or either side is worth under $2,000, the whole debt can go in one transaction. Any partial liquidation must also leave at least $1,000 of collateral and $1,000 of debt in place. When it cannot, the position is cleared in full, which keeps tiny leftover balances, known as dust, out of the pool (source: Aave Help, Health Factor & Liquidations).
| Condition | Largest repayment in one liquidation |
|---|---|
| health factor above 0.95, collateral and debt each at least $2,000 | 50% of total debt |
| health factor at or below 0.95, or collateral or debt under $2,000 | 100% of total debt |
| a partial liquidation would leave under $1,000 of collateral or debt | the full position, to avoid dust |
Those rules explain the earlier sell-off. At 0.987 the reading sat above 0.95 and both sides were well over $2,000. That made $3,000, half of the $6,000 debt, the most one liquidator could repay, and the $4,250 and $3,000 left behind both cleared the $1,000 floor. Had ETH fallen until your collateral was worth $7,000, the health factor would have been (7,000 × 0.80) / 6,000 = 0.933. A single liquidator could then have repaid the whole $6,000 at once.
The share of debt a liquidator may repay is often called the close factor, and it is a separate parameter from the liquidation bonus. A common misreading takes a 50% close factor to mean a 50% penalty. The close factor measures how much debt is repaid, while the bonus measures the extra collateral taken, which is why the 50% repayment in the example cost you $150 and left most of your ETH in place. A position that is still under 1 after one liquidation can be liquidated again, and governance can change the 0.95 and dollar limits over time.
What moves the health factor after you borrow
Your health factor changes every time an oracle price updates or interest accrues, even if you never touch the position. It rises when you supply more collateral or repay debt. It falls when the collateral price drops or the price of the borrowed asset rises, so a reading you checked last week may be out of date today.
Supplying more collateral and repaying part of the borrow both improve the health factor, and by default a repayment raises it more than a supply does. An Aave borrow has no fixed repayment date, so a well-collateralized position can stay open indefinitely. The interest that builds up over time still pushes the health factor down on its own. Keeping the health factor above 2 is one example of a margin that gives you more room before liquidation (source: Aave FAQ).
The prices in the formula are oracle prices. Aave reads them from decentralized oracles such as Chainlink (source: Aave FAQ). Chainlink Data Feeds aggregate many data sources through a decentralized network of independent node operators (source: Chainlink, Price Feeds). The price your wallet or a charting site shows can come from a different index or update at a different moment. Liquidation eligibility follows the oracle feed the market is configured to read.
These everyday changes move the health factor:
- A lower collateral price, or a higher price for the borrowed asset, pulls the health factor down.
- Accrued borrow interest adds to the debt side with no new borrow needed.
- Supplying more of an enabled collateral raises the collateral side, using the same steps as your first supply on Aave.
- Withdrawing collateral lowers the reading. Aave lets a withdrawal through only up to the amount that keeps your open borrows clear of liquidation (source: Aave FAQ).
Aave V3 runs as a non-custodial protocol, which means you keep custody of your own assets (source: Aave Docs, Aave V3 Overview). Nobody at the protocol watches your position for you. Set a reading you will not drop below, check it whenever your collateral is volatile, and repay or add collateral before you reach it.
Protocol liquidation and an exchange close-out
An Aave liquidation is a smart contract transaction that any liquidator can send once your health factor falls below 1, while an exchange close-out is the exchange's own risk engine closing a margin or perpetual position on its order book. Both are called liquidation, but they run on different systems with different rules.
On Aave, your collateral and debt sit in the pool's smart contracts. Supplying an asset mints aTokens, interest-bearing tokens whose balance grows as borrowers pay interest (source: Aave Docs, Aave V3 Overview). A liquidator must bring the borrowed asset, repay part of your debt, and take collateral with the bonus on top. Whatever collateral and debt remain stay in your account. On a centralized exchange, a leveraged position is liquidated by the exchange itself when your margin can no longer cover its requirements. No outside party repays anything.
| Event | Where it runs | What you are left with |
|---|---|---|
| Aave liquidation | the pool smart contract, health factor below 1 | any remaining collateral and debt in that market |
| exchange perpetual close-out | the exchange's matching and margin engine | a closed contract and the margin left in your account |
| spot token sale | the exchange's spot order book | a different token balance on the exchange |
Managing a borrow and a separate trade
If you keep an exchange trade alongside an Aave borrow, each position needs its own funds and risk checks. A broad sell-off can lower both the collateral behind the loan and the value of the trade, so settle how you will fund each response before you open the second position.
BloFin offers AAVE/USDT Spot for buying the token itself and the AAVEUSDT Perpetual for trading its price with margin. A falling Spot price reduces the value of your holding without forcing a sale. A sufficiently large move against a Perpetual can cause an exchange close-out. Check how much margin backs an AAVE perpetual position before adding one while a borrow is open. If you run both together, use this routine:
Suppose your Aave borrow is backed by ETH and you also hold a long AAVEUSDT Perpetual. A market-wide drop lowers the value of your ETH collateral and pushes your health factor toward 1, and at the same time it puts the perpetual position at a loss and eats into its margin. Closing the perpetual does nothing for the Aave borrow, and adding collateral on Aave does nothing for the perpetual, so you need cash or tokens set aside for each one before the drop arrives.
- Check your Aave health factor before you open the trade, and repay or add collateral first if it sits close to your own minimum.
- Size the perpetual position from the distance to your stop loss, so a stopped trade does not use funds you planned for the borrow.
- Keep a separate reserve in the asset you borrowed, so you can repay on Aave without closing a trade at a bad price.
Check the maker and taker rates for your tier on the BloFin fee schedule before placing an order, and keep trading costs separate from the funds reserved for your borrow.
Looking to trade AAVE tokens on BloFin? To get started, you'll need to first create a BloFin account, fund your account with cryptocurrency, then open the AAVE/USDT Spot trading page or the AAVEUSDT Perpetual page.
Frequently asked questions
Is a health factor of exactly 1 already liquidatable?
A position becomes eligible for liquidation only when the health factor falls below 1, so a reading of exactly 1.00 is the lowest level a liquidator cannot act on, and it leaves you no buffer at all. Aave sets no universal safe reading, because a safe level depends on how volatile and how correlated your assets are. A lower reading can be acceptable when collateral and debt move together, such as stablecoins borrowed against stablecoins or ETH-linked tokens against ETH, while unrelated assets need much more room (source: Aave Help, Health Factor & Liquidations).
Can I repay my Aave debt with my collateral instead of being liquidated?
The Aave interface offers a repay-with-collateral feature that uses a flash loan and a decentralized exchange (DEX) to convert part of your aTokens into the borrowed asset and repay the debt in one transaction. Because it is a repayment, your health factor rises and no liquidator collects a bonus. The feature is available on some Aave markets and not others. Third-party tools such as DeFi Saver can automate the same kind of repayment (source: Aave FAQ).
Does turning off a supply as collateral lower your health factor?
Switching a supply off as collateral removes its value from the collateral side of the formula, so your health factor falls whenever you have an open borrow. Suppose your collateral counts as $9,600 after thresholds against $6,000 of debt, a reading of 1.6. Switching off a supply that counted for $2,000 cuts the adjusted collateral to $7,600 and the health factor to 1.267. Work out that new number before you confirm the switch in your wallet, and keep the supply enabled if the result leaves too thin a buffer (source: Aave Help, Toggle Collateral Status).
Why can the health factor drop when the collateral chart looks flat?
Aave values every collateral and borrowed token with an oracle price against a base currency, usually USD, so the chart you watch may be measuring something else. A stablecoin you supplied can slip to $0.95 while an app still shows it near $1, and that discount reduces your collateral value in the formula. On $10,000 worth of USDC, a five-cent drop removes $500 of collateral value before any threshold is applied, and a rising dollar price for the token you borrowed has the same effect on the debt side (source: Aave FAQ).
What is the liquidation price of an Aave position?
Your liquidation price is the combination of balances and oracle prices at which the health factor falls under 1. With several collateral or borrowed tokens, it is a curve of possible combinations, so there is no single liquidation price. If you borrow GHO, whose oracle price is fixed, only the collateral side moves, which makes the level easier to estimate. For a mixed position, test a few price drops in a health factor simulator before you borrow, and watch the accrued interest as well (source: Aave FAQ).
Does repaying an Aave borrow in full release my collateral?
A full repayment releases your collateral, so you can withdraw it or use it for something else, while a partial repayment lowers the debt and lifts your health factor without freeing all of it. Both kinds of repayment start from the Your Borrowings list on the dashboard. Repaying with an ERC-20 token may first need an approval, which you can give either as a transaction that costs a network fee or as a signature that costs nothing (source: Aave Help, Repay Tokens).
Researched and written by the BloFin Academy editorial team with AI-assisted drafting. Primary sources include Aave Help on liquidations and collateral status, the Aave FAQ, Aave V3 documentation, Aave risk-parameter docs, and Chainlink price-feed docs. All facts independently verified against cited documentation current as of October 2026.
This article is for informational and educational purposes only. It is not financial, investment, trading, or legal advice. Cryptocurrency can lose value. Borrowing on Aave can lead to liquidation if the health factor drops below 1. Spot AAVE/USDT buys the token. An AAVEUSDT Perpetual is a contract on the price. Do your own research. Consider your circumstances before using any protocol or trading any asset.