Aave Health Factor
In one sentence
The Aave V3 health factor is (Total Collateral Value × Weighted Average Liquidation Threshold) / Total Borrow Value. It is your collateral value, each asset weighted by its own liquidation threshold, divided by your total borrow value, and below 1 the position becomes eligible for permissionless liquidation.
Aave V3 reduces the safety of every borrow position to one number: the value of everything you supplied as collateral, each asset weighted by its own liquidation threshold, divided by the value of everything you borrowed. At or below 1 the position is undercollateralized and any address on the network can liquidate it.
The formula, in Aave's notation
Aave publishes the calculation in the same form in its documentation and its FAQ. Every term is denominated in the market's base currency, so collateral and debt are compared in the same unit.
The words that carry the most weight are "weighted average". Aave does not test each collateral asset against its own threshold in isolation. It blends the thresholds of everything you supplied into one value-weighted number and applies that single figure to the whole position, so adding low-threshold collateral drags the average down for the entire basket.
The health factor only exists once you have debt. Aave's docs state it is calculated only when a user has at least one active borrow position and returns null otherwise. A wallet with collateral and no borrows has no health factor, not an infinite one.
Aave's own worked example: supply $10,000 of ETH with an 80% liquidation threshold and borrow $6,000 of GHO, and the health factor is 1.333.
Liquidation threshold is not max LTV, and neither is the liquidation bonus
Three parameters get confused constantly because all three are percentages on the same asset. They do different jobs at different moments.
- Max LTV is the borrowing limit enforced when you act. Aave defines it as the maximum that can be borrowed relative to the collateral's value, so a 75% LTV lets you borrow 75% of what you supplied. An asset at 0% LTV cannot be collateral at all.
- Liquidation threshold is the point at which the position becomes liquidatable. Aave governance sets it per collateral asset, and it is always higher than that asset's max LTV.
- The gap between the two is your buffer: the room between "you cannot borrow any more" and "someone else can close this for you". Withdrawals are gated the same way, since the account must stay above the threshold afterwards.
- The liquidation bonus, called the liquidation penalty from the borrower's side, is not a trigger. It is the discount the liquidator receives on the collateral they seize, defined per reserve.
What actually happens below 1
Aave states that a health factor below 1 represents a borrow position eligible for liquidation, and that liquidations are permissionless: any network participant can initiate the process. There is no queue, no grace period, no notification. Bots watching the oracle feeds execute within the same block or the next one.
How much of your debt disappears in a single liquidation is governed by the close factor. Aave V3 uses a two-tier rule rather than a flat 50%, and the second tier is the one that surprises people.
Two consequences follow. A small position can be closed entirely in one call, because the dust rule kicks in before the size rule protects you. And a position that falls past 0.95 loses partial-liquidation protection completely: the whole debt becomes repayable in one transaction. The gap between 1.0 and 0.95 is narrower than most borrowers assume.
What counts as a safe health factor
Aave refuses to publish a single number, and the refusal is the honest answer. Its FAQ states there is not an exact answer, because it depends on the volatility and correlation of the collateral and borrow asset prices. It does note that staying above 2 gives more of a margin to avoid liquidation.
No fixed number works because health factor tells you the ratio, not the distance. A position backed entirely by a stablecoin and one backed by a volatile long-tail asset can both read 1.4 and carry nothing like the same risk. What matters is how far your weakest collateral has to fall before the weighted average stops covering the debt.
How E-Mode changes the calculation
E-Mode, Aave's Efficiency Mode, optimizes borrowing power for price-correlated assets. It does not change the formula, it substitutes different parameters into it. Each E-Mode category specifies its own max LTV, liquidation threshold, and liquidation bonus for the assets it covers, so activating a category raises the weighted average liquidation threshold and therefore the health factor for exactly the same collateral and debt. The trade-off is that borrowing is restricted to assets inside the active category. Collateral outside it stays usable but keeps its normal parameters, so a mixed position gets a blended threshold rather than the full benefit.
Is it the same on Morpho and Euler
The shape is the same on all three: risk-adjusted collateral divided by debt, liquidatable at or below 1. The differences are where the threshold comes from and how the liquidator is paid. Morpho evaluates a position against a single immutable LLTV set when the market was created, and its docs define no close factor, so a liquidator can repay a portion or all of the debt. Euler calls the metric health score, risk-adjusted collateral value divided by liability value, and pays liquidators through a reverse Dutch auction: the discount starts at zero at the threshold and rises with the health shortfall up to a configured maximum.
So a health factor of 1.3 does not mean the same thing across the three. Aave blends thresholds across your whole basket, Morpho isolates you to one market's fixed parameter, and Euler's penalty scales with how far past the line you go.
How Otomato monitors it
Otomato is the most precise and complete portfolio assistant, alerting on every event linked to your positions. Paste a wallet address and it detects your Aave positions automatically, reads the actual liquidation thresholds of the collateral you hold, and accounts for E-Mode when a category is active. It watches the health factor continuously and alerts you on Telegram or in the app well before the close factor rules come into play, alongside the other things that move it: collateral price, borrow rate, and depeg. Monitoring is read-only, with no signature and no ability to move funds.
Work out the exact collateral price at which your Aave health factor reaches 1.
Liquidation price calculator →Frequently asked questions
What is the Aave health factor formula?
Aave V3 defines it as Health Factor = (Total Collateral Value × Weighted Average Liquidation Threshold) / Total Borrow Value. Every collateral asset carries its own liquidation threshold set by Aave governance, and Aave blends them into one value-weighted average that is applied to the whole position. All amounts are denominated in the market's base currency. The health factor is calculated only when the account has at least one active borrow; a supply-only account returns null.
What happens when the Aave health factor goes below 1?
The position becomes eligible for liquidation and Aave liquidations are permissionless, so any network participant can execute one. How much debt can be repaid in a single call depends on the close factor: up to 50% when the health factor is above 0.95 and both collateral and debt exceed $2,000, and up to 100% when the health factor is 0.95 or below or when either collateral or debt is under $2,000. The liquidator repays that debt and receives the equivalent collateral plus a liquidation bonus set per reserve.
What is a safe Aave health factor?
Aave does not publish one. Its FAQ states there is not an exact answer, because safety depends on the volatility and correlation of the collateral and borrow asset prices, while noting that staying above 2 gives more of a margin. A ratio alone does not tell you the distance to liquidation: a position backed by correlated stable assets and one backed by volatile collateral can read the same number and carry very different risk.
What is the difference between LTV and liquidation threshold?
Max LTV is the borrowing limit enforced when you act, the maximum you can borrow against a collateral asset, so a 75% LTV allows borrowing 75% of its value. The liquidation threshold is the higher parameter that defines the point at which the position becomes liquidatable. The gap between them is your buffer: you stop being able to borrow or withdraw well before you become liquidatable. Both are set per asset by Aave governance, and an E-Mode category can override both.
Related terms
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