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  "id": "collateral-and-health-factors",
  "canonical": "https://degreesofsatoshi.com/encyclopedia/collateral-and-health-factors/",
  "collection": "defi",
  "title": "Collateral and health factors: measuring a loan against its limits",
  "description": "Calculate an Aave-style health factor, distinguish borrowing limits from liquidation thresholds, and see how prices or interest can change a position.",
  "aliases": [
    "LTV",
    "collateral ratio"
  ],
  "dates": {
    "published": "2026-10-02",
    "modified": "2026-10-02",
    "verified": "2026-10-02T18:17:57.897Z",
    "dataAsOf": null
  },
  "authorship": {
    "publisher": "Degrees of Satoshi editorial project",
    "process": "AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied."
  },
  "quickAnswer": {
    "text": "Collateral secures a loan under a market’s rules. Aave’s health factor divides threshold-weighted collateral value by debt value; below one, a position is eligible for liquidation. The liquidation threshold is distinct from the initial borrowing limit, and neither a high value nor price correlation guarantees future solvency.",
    "claimId": "collateral-and-health-factors-quick-answer",
    "sourceIds": [
      "health",
      "pool"
    ]
  },
  "keyFacts": [
    {
      "label": "Health factor",
      "value": "Threshold-weighted collateral value divided by debt value.",
      "sourceIds": [
        "health"
      ],
      "id": "health-factor",
      "claimId": "collateral-and-health-factors-fact-health-factor"
    },
    {
      "label": "Eligibility",
      "value": "A health factor below one enables liquidation under the cited model.",
      "sourceIds": [
        "health"
      ],
      "id": "eligibility",
      "claimId": "collateral-and-health-factors-fact-eligibility"
    },
    {
      "label": "Borrow limit",
      "value": "Borrow validation also uses loan-to-value and other market constraints.",
      "sourceIds": [
        "pool"
      ],
      "id": "borrow-limit",
      "claimId": "collateral-and-health-factors-fact-borrow-limit"
    }
  ],
  "prerequisites": [
    "defi-lending-pools",
    "blockchain-oracles"
  ],
  "sections": [
    {
      "id": "weighted",
      "heading": "Work through the collateral buffer in one unit",
      "paragraphs": [
        "With hypothetical collateral worth $2,000, an 80% liquidation threshold and debt worth $1,000, threshold-weighted collateral is $1,600 and the simplified health factor is 1,600/1,000, or 1.6. If collateral falls to $1,250 with debt unchanged, the ratio reaches 1.",
        "Real calculations use the protocol’s prices, asset-specific weights, integer rounding and mode rules. Interest can increase the debt while no new borrowing occurs. Keep the initial borrowing LTV separate from the liquidation threshold, and do not describe the maximum permitted loan as a safety recommendation."
      ],
      "sourceIds": [
        "edition-aave-reserve",
        "pool",
        "health"
      ]
    },
    {
      "id": "changes",
      "heading": "A position can change without a new loan",
      "paragraphs": [
        "If that collateral value falls to 1,200 while debt remains 1,000, the health factor becomes 0.96. The calculation crosses below one even though the borrower did not submit another transaction. Growing interest or a rise in the borrowed asset’s price can also worsen it.",
        "A price relationship that has held in the past may break. Two assets sharing a reference currency or underlying exposure need not remain perfectly correlated, particularly when one is a receipt, wrapper or bridged claim."
      ],
      "sourceIds": [
        "health"
      ]
    },
    {
      "id": "two-limits",
      "heading": "Borrowing capacity and liquidation are different checks",
      "paragraphs": [
        "Loan-to-value settings limit how much a new borrowing operation can create. Liquidation thresholds determine the weighted collateral used for liquidation eligibility. Treating the two settings as interchangeable can misstate both available borrowing and the distance to liquidation.",
        "Other rules can include reserve caps, isolated borrowing modes and asset restrictions. A correct health-factor calculation therefore does not prove that every proposed borrow or withdrawal is allowed."
      ],
      "sourceIds": [
        "pool"
      ]
    }
  ],
  "faq": [
    {
      "question": "Is a health factor of two always safe?",
      "answer": "No universal number guarantees future outcomes. Price moves, interest, oracle behavior and market changes can alter it. The factor is a model-specific measure of the current position against configured thresholds.",
      "sourceIds": [
        "health"
      ]
    }
  ],
  "claims": [
    {
      "id": "collateral-and-health-factors-quick-answer",
      "articleSlug": "collateral-and-health-factors",
      "statement": "Collateral secures a loan under a market’s rules. Aave’s health factor divides threshold-weighted collateral value by debt value; below one, a position is eligible for liquidation. The liquidation threshold is distinct from the initial borrowing limit, and neither a high value nor price correlation guarantees future solvency.",
      "sourceIds": [
        "source-74f79d59daaab5f0",
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-74f79d59daaab5f0",
          "locator": "Health Factor; Managing Health Factor; Liquidation Process"
        },
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; repay; liquidationCall"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:17:57.897Z",
        "reviewer": "automated independent verification — DeFi content-pass reviewer",
        "notes": [
          "Corrected a continuity error introduced by the pass: the replaced first example used 1000 collateral/600 debt while the following existing paragraph referred to collateral falling to 1200 with 1000 debt.",
          "Changed only pass 28 to begin 2000 collateral, 80% threshold and 1000 debt (HF 1.6), with boundary 1250 (HF 1). The unchanged next paragraph then consistently reaches 1200*.8/1000=.96.",
          "Reopened Aave Health Factor & Liquidations, reserve parameters and Pool conditions. The calculation distinguishes equality at 1 from below-one eligibility, initial LTV from threshold, and variable interest/market risk from a safety guarantee."
        ]
      }
    },
    {
      "id": "collateral-and-health-factors-fact-health-factor",
      "articleSlug": "collateral-and-health-factors",
      "statement": "Health factor: Threshold-weighted collateral value divided by debt value.",
      "sourceIds": [
        "source-74f79d59daaab5f0"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-74f79d59daaab5f0",
          "locator": "Health Factor; Managing Health Factor; Liquidation Process"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:17:57.897Z",
        "reviewer": "automated independent verification — DeFi content-pass reviewer",
        "notes": [
          "Corrected a continuity error introduced by the pass: the replaced first example used 1000 collateral/600 debt while the following existing paragraph referred to collateral falling to 1200 with 1000 debt.",
          "Changed only pass 28 to begin 2000 collateral, 80% threshold and 1000 debt (HF 1.6), with boundary 1250 (HF 1). The unchanged next paragraph then consistently reaches 1200*.8/1000=.96.",
          "Reopened Aave Health Factor & Liquidations, reserve parameters and Pool conditions. The calculation distinguishes equality at 1 from below-one eligibility, initial LTV from threshold, and variable interest/market risk from a safety guarantee."
        ]
      }
    },
    {
      "id": "collateral-and-health-factors-fact-eligibility",
      "articleSlug": "collateral-and-health-factors",
      "statement": "Eligibility: A health factor below one enables liquidation under the cited model.",
      "sourceIds": [
        "source-74f79d59daaab5f0"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-74f79d59daaab5f0",
          "locator": "Health Factor; Managing Health Factor; Liquidation Process"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:17:57.897Z",
        "reviewer": "automated independent verification — DeFi content-pass reviewer",
        "notes": [
          "Corrected a continuity error introduced by the pass: the replaced first example used 1000 collateral/600 debt while the following existing paragraph referred to collateral falling to 1200 with 1000 debt.",
          "Changed only pass 28 to begin 2000 collateral, 80% threshold and 1000 debt (HF 1.6), with boundary 1250 (HF 1). The unchanged next paragraph then consistently reaches 1200*.8/1000=.96.",
          "Reopened Aave Health Factor & Liquidations, reserve parameters and Pool conditions. The calculation distinguishes equality at 1 from below-one eligibility, initial LTV from threshold, and variable interest/market risk from a safety guarantee."
        ]
      }
    },
    {
      "id": "collateral-and-health-factors-fact-borrow-limit",
      "articleSlug": "collateral-and-health-factors",
      "statement": "Borrow limit: Borrow validation also uses loan-to-value and other market constraints.",
      "sourceIds": [
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; repay; liquidationCall"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": null,
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:17:57.897Z",
        "reviewer": "automated independent verification — DeFi content-pass reviewer",
        "notes": [
          "Corrected a continuity error introduced by the pass: the replaced first example used 1000 collateral/600 debt while the following existing paragraph referred to collateral falling to 1200 with 1000 debt.",
          "Changed only pass 28 to begin 2000 collateral, 80% threshold and 1000 debt (HF 1.6), with boundary 1250 (HF 1). The unchanged next paragraph then consistently reaches 1200*.8/1000=.96.",
          "Reopened Aave Health Factor & Liquidations, reserve parameters and Pool conditions. The calculation distinguishes equality at 1 from below-one eligibility, initial LTV from threshold, and variable interest/market risk from a safety guarantee."
        ]
      }
    }
  ],
  "sources": [
    {
      "id": "health",
      "label": "Health Factor & Liquidations",
      "publisher": "Aave",
      "url": "https://aave.com/help/borrowing/liquidations",
      "locator": "Health Factor; Managing Health Factor; Liquidation Process",
      "note": "Weighted liquidation thresholds and eligibility below health factor one.",
      "version": null,
      "checkedAt": "2026-10-02",
      "recordId": "source-74f79d59daaab5f0",
      "contentSha256": null
    },
    {
      "id": "pool",
      "label": "Aave V3 Pool",
      "publisher": "Aave",
      "url": "https://aave.com/docs/aave-v3/smart-contracts/pool",
      "locator": "supply; withdraw; borrow; repay; liquidationCall",
      "note": "Pool operations, collateral restrictions and liquidation settlement.",
      "version": "Aave V3",
      "checkedAt": "2026-10-02",
      "recordId": "source-b35859a766315ce4",
      "contentSha256": null
    },
    {
      "id": "edition-aave-reserve",
      "label": "Reserve",
      "publisher": "Aave",
      "url": "https://www.aave.com/docs/aave-v3/concepts/reserve",
      "locator": "Key Reserve Parameters; Dynamic Parameters and Governance",
      "note": "Reserve LTV, liquidation threshold, borrow availability, caps and rate parameters.",
      "version": "Aave V3 documentation",
      "checkedAt": "2026-10-02T17:03:44.647Z",
      "contentSha256": "d0a67f33949654d88c124c14222ce1e493f86a9895b956b5e7b99c5f8102e672",
      "recordId": "source-15989fc372ee02a4"
    }
  ],
  "related": {
    "articles": [
      "defi-liquidations",
      "utilization-and-borrowing-rates",
      "blockchain-oracles",
      "liquidation-bonus"
    ],
    "dossiers": [],
    "wallets": []
  },
  "revisionHistory": [
    {
      "date": "2026-10-02",
      "kind": "published",
      "summary": "First publication after primary-source research and independent automated verification."
    },
    {
      "date": "2026-10-02",
      "kind": "substantive-edit",
      "summary": "Expanded explanation: Work through the collateral buffer in one unit. Worked examples are illustrative; source checks and independent verification are recorded separately."
    }
  ],
  "citation": "Degrees of Satoshi editorial project. “Collateral and health factors: measuring a loan against its limits.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/collateral-and-health-factors/"
}