Aave liquidations are triggered when Health Factor falls below 1

Aave liquidations are protocol-enforced debt repayments that begin when an account's Health Factor drops below 1. A liquidator repays eligible debt and receives borrower collateral, including the configured liquidation bonus, while the protocol updates the account atomically. Monitoring therefore means tracking collateral values, borrowed value, accrued interest, and each reserve's liquidation threshold - not merely watching one token price. The exact amount removed differs between active Aave V3 markets and Aave V4 Spokes on Ethereum.

Published 2026-08-06

From an oracle update to a collateral transfer

An Aave liquidation event begins when an oracle price update makes the account's computed Health Factor lower than 1. The transaction then selects one debt asset and one collateral asset, repays the former, and transfers the latter under that market's liquidation rules.

Aave markets use Chainlink feeds alongside asset-specific oracle adapters to value supported collateral and debt in a common base currency. Eligibility is checked against on-chain state when the liquidation transaction executes, so a dashboard alert does not reserve time for the borrower. A price recovery or earlier repayment that restores Health Factor before execution makes the attempted call fail; if the account remains below 1, any address may submit the permissionless call.

Settlement is atomic. The Pool updates interest indexes, burns covered debt, removes collateral, routes any protocol share of the bonus, and emits a record in one transaction. The borrower does not approve it because the collateral was already committed to the protocol's solvency rules.

Health Factor turns several balances into one threshold

In the usual case, Aave Health Factor measures liquidation headroom by comparing threshold-adjusted collateral with total debt. Its formula is total collateral value multiplied by the weighted average liquidation threshold, divided by total borrow value.

Each enabled collateral reserve contributes its own governance-set threshold, so a wallet holding WETH and WBTC receives a value-weighted result. Debt includes accrued variable interest and uses oracle values for assets such as USDC or GHO. A reading of 1.20 means the adjusted collateral numerator is 20% larger than the debt denominator; 1.00 is the boundary, and any value below 1 makes the account eligible.

Consider a unit-free snapshot with $10,000 of one collateral, an 80% liquidation threshold, and $6,000 of debt. Health Factor equals 1.333 because $10,000 × 0.80 ÷ $6,000 = 1.333. If debt stays fixed, the same collateral reaches exactly 1.00 at a $7,500 oracle valuation; a lower value crosses the threshold. This calculation is a scenario, not a live asset quote.

Price gaps, interest accrual, and correlation change the buffer

Liquidation risk grows when collateral loses value, borrowed assets gain value, or variable debt accrues faster than the collateral side. A governance change to a reserve's liquidation threshold also changes the weighted numerator, which is why token price alone never describes the complete position.

Correlation affects how much room a borrower needs. WETH and wstETH commonly move more closely together than WETH and USDC, while GHO debt against volatile collateral exposes the account mainly to the collateral side of the ratio. Aave E-Mode applies category-specific parameters to correlated assets, yet its higher capital efficiency leaves less room for deviations from the expected relationship. A second collateral asset helps only in proportion to its value, threshold, and price behavior.

Network boundaries matter as well. An Ethereum position does not borrow support from collateral held on Arbitrum, Optimism, Base, Polygon, or Avalanche. Each deployment reads its own account state, so capital on another chain cannot raise the endangered Health Factor without a separate bridge and supply sequence.

V3 close factors set the maximum debt coverage

Beyond the basics, Aave liquidations in V3 follow fixed close-factor and dust rules after an account becomes eligible. These limits determine how much debt one call covers; the reserve's liquidation bonus determines how much selected collateral leaves the borrower.

In Aave V3, a position above 0.95 Health Factor with both the selected collateral and debt worth at least $2,000 permits liquidation of up to 50% of total account debt, while a Health Factor at or below 0.95, or a smaller selected balance, permits up to 100%; a partial liquidation must leave at least $1,000 of both collateral and debt.

Suppose total account debt is $12,000, Health Factor is 0.97, and the chosen reserve balances clear the $2,000 tests. The close-factor ceiling is $6,000, although a debt reserve with only $4,000 outstanding cannot supply more coverage. Coverage also stops when the selected collateral cannot support the corresponding seizure plus bonus. A partial liquidation recalculates the account from its remaining balances rather than promising a fixed post-event Health Factor.

V4 restores a target Health Factor instead of using a fixed half

In the same way, Aave V4 liquidation sizing repays enough debt to move the borrower toward a governance-defined target Health Factor for the relevant Spoke. Aave V4 became active on Ethereum on March 30, 2026, while Aave V3 markets retain their own rules, so version identification belongs at the start of monitoring.

The topic is examined in practice. The V4 engine compares the liquidator's requested coverage, outstanding debt, available collateral, and the debt needed to reach the Spoke target. It selects the permitted amount and applies a bonus that rises as Health Factor deteriorates, capped by the collateral reserve's maximum. The Core Hub Main Spoke and Lido Spoke therefore need not share one target or bonus curve; governance configures these values at Spoke and reserve level.

V4 retains a $1,000 dust-liquidation threshold: when a normal partial action would leave a smaller debt or collateral remainder and the liquidator elects full cleanup, allowable coverage expands to clear it. Contract arithmetic expresses Health Factor in WAD, where 1 WAD equals 10 ¹⁸ , and percentages in basis points, where 10,000 basis points equal 100%. Those units matter when a monitor reads raw configuration.

The liquidation bonus converts covered debt into collateral loss

The Aave liquidation bonus is the extra collateral valuation attached to debt repaid by a liquidator. V3 stores a reserve-specific bonus, whereas V4 derives an effective bonus from Health Factor, a Spoke-level scaling factor, a maximum-bonus threshold, and a reserve-level ceiling.

Basis points make the arithmetic explicit: 100 basis points equal 1 percentage point, so a 5% bonus equals 500 basis points. In a hypothetical V3 liquidation covering $1,000 of debt at an effective 5% bonus, the gross collateral removed has an oracle value of $1,050 before token rounding. If the protocol fee in that scenario took 10% of the $50 bonus, $5 would go to the protocol and the liquidator would receive $1,045 of collateral value; the borrower's total reduction would remain $1,050.

The reserve owns the maximum bonus and protocol-fee settings; V4 also reads Spoke-wide bonus inputs. A liquidator must source the debt token and decide whether received collateral is worth unwinding after network fees and market price impact. Those economics change who executes first, but they do not move the borrower's eligibility boundary away from Health Factor 1.

Monitoring must follow on-chain values, not wallet balances

Generally, Aave position monitoring needs the account's protocol balances, reserve parameters, oracle prices, and accrued debt on the correct network. MetaMask and Safe show wallet assets and transactions, while the Aave interface calculates Health Factor from supplied collateral and borrow state.

Raw-data monitors must normalize token units before applying prices: USDC uses 6 decimals, WBTC uses 8, and WETH, wstETH, and GHO use 18. In Aave V3, the LiquidationCall event exposes 7 parameters, including 3 indexed addresses for the collateral asset, debt asset, and borrower; the other fields record debt covered, collateral removed, liquidator, and whether aTokens were received. That event confirms execution after the fact rather than predicting one.

• Read Health Factor from the exact market and account address.
• Track collateral and debt oracle updates, not exchange candles alone.
• Include variable interest growth between scheduled checks.
• Recalculate after withdrawals, borrows, repayments, and collateral toggles.
• Keep the network's native gas token available for a signed intervention.

For a worked version, see Aave borrowing. Alert frequency should follow the position's price sensitivity and transaction path. DeFi Saver supports automated management for compatible setups, while a custom monitor may read Pool data and Chainlink updates directly. A preventive repayment protects the account only after the transaction settles and Health Factor rises.

Choose an intervention that matches the control model

An Aave position intervention works only when it increases threshold-adjusted collateral, reduces debt, or executes a configured deleveraging path before liquidation settles. The right choice follows the assets already available, the wallet's signing process, and the account's version-specific rules.

Repayment is the most direct path when the debt token and gas are already on the correct network. Additional collateral preserves the debt but places more capital behind the same position, and a low-threshold asset adds less numerator value than an equal-valued high-threshold asset. Automation reduces reaction delay after configuration, although supported networks, smart-wallet setup, and rule permissions constrain its fit.

Control latency deserves equal weight. A MetaMask account signs with one key, while a Safe account follows its configured multisignature threshold and needs enough buffer for coordination. Borrowers unable to monitor volatile collateral or assemble signatures quickly are poorly matched to a Health Factor close to 1. A wider buffer, smaller debt balance, or fully repaid position removes more event-ordering pressure than a faster alert alone.