Aave liquidation is triggered below Health Factor 1

V4 changed the close-factor playbook

Day to day, Aave V4 replaced the fixed close-factor step with target-based liquidation sizing. Activated on Ethereum on March 30, 2026, V4 now operates alongside Aave V3 rather than rewriting every existing V3 position.

The shared trigger remains a Health Factor below 1. What happens after that trigger differs sharply. V3 selects between defined close-factor regimes. V4 calculates a repayment ceiling from the account's present Health Factor, its target Health Factor, the collateral factor, and the applicable liquidation bonus.

Both versions settle through permissionless smart-contract calls. Neither waits for a scheduled auction. The comparison that matters is therefore fixed-percentage repair versus calculated repair, not one protocol brand against another.

How Health Factor crosses the line

Aave Health Factor compares risk-adjusted collateral with total debt. In V3, the calculation is total collateral value multiplied by the weighted average liquidation threshold, divided by total borrow value.

Health Factor = risk-adjusted collateral value ÷ total debt value

A value of 1 is the eligibility boundary. A value above 1 blocks liquidation. A value below 1 permits it. The contracts express Health Factor in WAD precision, where 10 ¹⁸ represents 1. This precision matters near the boundary because the onchain integer, not a rounded interface display, controls transaction validity.

Three inputs move the ratio. Oracle prices revalue collateral and debt. Variable interest increases the debt balance. Governance-set liquidation thresholds determine how much of each collateral unit supports the numerator. Aave V4 uses a collateral factor in the same risk-adjustment role, while its target Health Factor controls how far the repair should move the account after liquidation.

Penalty math starts with the selected collateral

The Aave collateral penalty is implemented as extra collateral transferred above the oracle value of repaid debt. In V3, each collateral reserve has a liquidation-bonus multiplier. An eligible E-mode category supplies its own multiplier when the category rules apply.

At a protocol level, Aave stores percentage values in basis points. Exactly 10,000 basis points represent 100%, and 1 basis point represents 0.01%. A stored liquidation multiplier of 10,500 basis points therefore represents 105%: debt value plus a 5% collateral bonus. This arithmetic explains the borrower's gross collateral reduction before any market movement after settlement.

The liquidation protocol fee takes a configured share of the bonus portion. It does not add another charge to the debt principal. Part of the seized bonus goes to the protocol treasury, while the remainder stays with the liquidator.

V4 makes the incentive dynamic. Its minimum bonus equals the 100% principal multiplier plus a configured fraction of the gap to the maximum bonus. The bonus then rises linearly as Health Factor falls. The maximum multiplier must be at least 100%, and the scaling factor cannot exceed 100%, as described in Aave walkthrough.

The transaction's five state changes

An Aave liquidation call pairs one collateral reserve with one debt reserve. A multi-asset account therefore resolves through one or more atomic calls, even though eligibility comes from the account-wide Health Factor.

1. A liquidator selects the borrower, debt asset, collateral asset, and debt amount.
2. The Pool or Spoke checks the borrower's onchain Health Factor against 1.
3. The configured oracle values both assets in a common reference currency.
4. The debt token transfers in, and the borrower's corresponding debt balance decreases.
5. Collateral shares or underlying collateral transfer out with the applicable bonus.

Token precision is normalized inside the calculation. USDC uses 6 decimals, while WETH and GHO use 18 decimals. The contracts convert those ERC-20 units before applying prices, multipliers, and rounding. V3 also lets the caller request aTokens instead of underlying collateral; V4 exposes a share-receipt choice suited to its Hub-and-Spoke accounting.

V3 close factors at 0.95 and around small balances

In most cases, Aave V3 close-factor logic starts with a 50% ceiling when Health Factor remains above 0.95 and the selected collateral and debt balances each meet the small-position threshold. The 50% limit is measured against the account's total debt value, then capped by the selected debt reserve's actual balance.

When the V3 Health Factor is 0.95 or lower, as much as 100% of the selected debt reserve becomes liquidatable. Full liquidation also becomes available when either the selected collateral value or selected debt value is below $2,000 under the standard USD-denominated configuration.

V3.3 added a cleanup constraint. A partial call must leave at least $1,000 of both selected collateral and selected debt, or clear one side completely. The constants use a USD reference price with 8 decimals by default; a non-USD-denominated pool must adapt the base-value thresholds. These rules prevent a mechanically valid 50% repayment from creating an uneconomically small remainder.

V4 targets repair rather than a fixed percentage

As a rule, Aave V4 liquidation sizing calculates the debt repayment needed to move a position toward its configured target Health Factor. That target must be at least 1, while the Health Factor at which the maximum bonus activates must remain below 1.

The calculation combines total debt value, current Health Factor, target Health Factor, debt price, collateral factor, and liquidation penalty. A caller cannot seize a fixed 50% merely because the account crossed the boundary. The calculated debt-to-target amount sets the ordinary ceiling, and the borrower retains more collateral when a smaller repayment completes the configured repair.

V4 retains a hard dust rule. Its $1,000 value threshold applies to small remaining debt or collateral. If ordinary target sizing would leave less than that amount and the call requests complete repayment, the logic expands the permitted amount to clear the relevant position. Collateral exhaustion also caps what the transaction can settle. Consequently, the target is a normal sizing rule rather than an unconditional post-transaction promise.

Oracle movements hit both sides of the fraction

Before any of that matters, Aave oracle inputs determine the common-currency values used for eligibility and settlement. The Aave Oracle routes configured feeds rather than assigning a permanent market price inside the lending contract. Ethereum deployments use Chainlink feeds for major assets, including Smart Value Recapture feed variants where configured.

A falling WETH collateral price reduces the numerator when debt is denominated in USDC or GHO. A rising debt-asset price increases the denominator. Even correlated collateral such as wstETH carries relative-price movement against WETH, so correlation narrows one source of variation without removing the Health Factor boundary.

Oracle conversion also fixes how much collateral corresponds to the repaid debt. The liquidator does not negotiate that exchange rate with the borrower. A secondary-market sale after settlement has separate liquidity and price-impact economics; it does not alter the amount already removed from the Aave position.

Monitor the inputs, not only the displayed ratio

Broadly, Aave position monitoring centers on Health Factor, debt growth, collateral composition, and the active risk configuration. The Aave interface presents the aggregate ratio, while tools such as DeFi Saver add simulations and user-configured automation for supported positions.

The aggregate number hides concentration. One volatile collateral reserve can dominate a mixed account. Several debts can also react differently because each oracle price and variable borrow index evolves separately. Record the liquidation threshold or collateral factor for every enabled asset, then recalculate the weighted numerator after any balance change.

Network conditions affect response time rather than eligibility. Ethereum block ordering decides whether a borrower's repayment or a competing liquidation reaches the valid state first. Monitoring therefore needs an action buffer. An alert delivered after the onchain value crosses 1 reports an already eligible position, not an approaching one.

Rebuild the buffer through debt or collateral

Beyond the basics, Aave liquidation prevention changes one side of the Health Factor formula before the boundary is crossed. Repaying debt reduces the denominator directly. Adding collateral increases the numerator only after the asset's liquidation threshold or collateral factor is applied.

Those actions are not mathematically equivalent. One unit of debt value repaid removes one unit from total debt value. One unit of collateral value contributes less than one unit to risk-adjusted collateral whenever its threshold is below 100%. Adding more of the same volatile token also leaves the account exposed to the same price direction.

A useful buffer reflects the assets' volatility, their correlation, interest accrual, and the time needed to submit a transaction. No universal Health Factor supplies the same distance for a WETH-to-USDC position and a wstETH-to-WETH position. The correct comparison is the price move required to reach 1, not the number of decimal places displayed by the interface.

E-mode, isolation, and multi-reserve edge cases

More broadly, Aave E-mode and isolation mode alter account constraints without replacing the liquidation trigger. V3 E-mode applies category-specific thresholds and bonuses when the collateral and debt satisfy the category rules. Isolation mode restricts eligible borrowing and debt ceilings, while Health Factor below 1 still opens liquidation.

A weighted account can remain eligible after one debt reserve is partially repaid. Eligibility ends only when the recalculated account-wide Health Factor reaches at least 1. A liquidator may then select another borrowed reserve and another enabled collateral reserve in a later call.

Collateral exhaustion is the harsher edge. In V3.3, debt remaining after all collateral is removed becomes a recorded reserve deficit rather than continuing as ordinary user debt. V4 evaluates deficit across its Spoke and Hub accounting after the liquidation state changes.

V4 also attaches dynamic risk-configuration identifiers to positions. The applicable collateral factor, maximum bonus, fee, and other inputs come from that recorded configuration, not from a ticker-level assumption. This distinction matters when comparing WETH, wstETH, USDC, GHO, and AAVE positions across different Spokes or across V3 and V4.