# Collateral and health factors: measuring a loan against its limits 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. Evidence: [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations); [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) Canonical: https://degreesofsatoshi.com/encyclopedia/collateral-and-health-factors/ Published: 2026-10-02 Substantively modified: 2026-10-02 Independently verified by an automated reviewer: 2026-10-02T18:17:57.897Z AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied. ## Key facts - **Health factor:** Threshold-weighted collateral value divided by debt value. ([Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations)) - **Eligibility:** A health factor below one enables liquidation under the cited model. ([Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations)) - **Borrow limit:** Borrow validation also uses loan-to-value and other market constraints. ([Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool)) ## Work through the collateral buffer in one unit 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. Evidence: [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve); [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool); [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations) ## A position can change without a new loan 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. Evidence: [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations) ## Borrowing capacity and liquidation are different checks 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. Evidence: [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) ## Questions ### Is a health factor of two always safe? 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. Evidence: [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations) ## Claims and scope ### collateral-and-health-factors-quick-answer 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. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### collateral-and-health-factors-fact-health-factor Health factor: Threshold-weighted collateral value divided by debt value. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### collateral-and-health-factors-fact-eligibility Eligibility: A health factor below one enables liquidation under the cited model. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### collateral-and-health-factors-fact-borrow-limit Borrow limit: Borrow validation also uses loan-to-value and other market constraints. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ## Sources - [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations) — Aave. Weighted liquidation thresholds and eligibility below health factor one. Locator: Health Factor; Managing Health Factor; Liquidation Process. Retrieved: 2026-10-02. - [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) — Aave. Pool operations, collateral restrictions and liquidation settlement. Locator: supply; withdraw; borrow; repay; liquidationCall. Retrieved: 2026-10-02. - [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve) — Aave. Reserve LTV, liquidation threshold, borrow availability, caps and rate parameters. Locator: Key Reserve Parameters; Dynamic Parameters and Governance. Retrieved: 2026-10-02T17:03:44.647Z. ## Revision history - 2026-10-02: First publication after primary-source research and independent automated verification. - 2026-10-02: Expanded explanation: Work through the collateral buffer in one unit. Worked examples are illustrative; source checks and independent verification are recorded separately. ## Cite this entry 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/