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Encyclopedia DeFi · Entry 158

LTV and liquidation threshold: two different collateral limits

AI-assisted research · separate automated verificationCorrections

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DeFi
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Key facts

Key facts for LTV and liquidation threshold: two different collateral limits
FactDetailSource
LTVAave describes LTV as maximum borrowing relative to collateral value.[1]
ThresholdThe liquidation threshold is used to assess liquidation risk.[1]
Health factorAave’s liquidation flow targets positions with health factor below 1.[2]
01

Calculate both boundaries

Suppose a simplified position has $1,000 of collateral, 75% LTV and an 80% liquidation threshold. Its initial LTV-based borrowing capacity is $750. With $600 debt, threshold-adjusted collateral is $800 and the simplified health factor is 800/600, about 1.33.

If the collateral falls to $750 while debt stays $600, the same calculation reaches 1. Actual eligibility follows the deployed protocol’s oracle, rounding and mode rules.

02

Price and interest can erode the margin

Collateral can fall, the debt asset can rise and debt can accrue interest. Each can worsen the position without a new borrowing action.

For multiple collateral assets, thresholds are weighted according to the protocol’s rules. Do not apply one asset’s threshold to the whole position without checking the configuration.

03

Keep the market and date attached

The same token can have different LTV and threshold settings in different markets or efficiency modes. Governance can also change parameters.

The figures above are hypothetical arithmetic, not current Aave recommendations. A displayed borrowing maximum is not a suggested safe loan size.

Direct answers

Questions people ask

Is the liquidation threshold the amount I should borrow?

No. It is a risk boundary under the protocol’s rules. Borrowing limits and a chosen safety buffer are separate, and market movements can reduce that buffer.

Inspect the evidence

The answer and key facts have stable claim links. These records retain the scope and qualification when reused.

Loan-to-value, or LTV, limits how much borrowing collateral can initially support under the protocol’s rules. The liquidation threshold helps determine when an existing position becomes eligible for liquidation. They are different parameters, and borrowing up to the allowed LTV can leave only a limited buffer against price changes and interest.

Scope: DeFi · data through 2026-10-02. Verification: verified · 2026-10-02T18:15:18.493Z.

Link to this claim
LTV: Aave describes LTV as maximum borrowing relative to collateral value.

Scope: DeFi · data through 2026-10-02. Verification: verified · 2026-10-02T18:15:18.493Z.

Link to this claim
Threshold: The liquidation threshold is used to assess liquidation risk.

Scope: DeFi · data through 2026-10-02. Verification: verified · 2026-10-02T18:15:18.493Z.

Link to this claim
Health factor: Aave’s liquidation flow targets positions with health factor below 1.

Scope: DeFi · data through 2026-10-02. Verification: verified · 2026-10-02T18:15:18.493Z.

Link to this claim
Revision history
  1. — First publication after primary-source research and independent automated verification.

Source register

Sources and references

Retrieval dates and locators are recorded individually.
  1. ReserveAave

    Reserve LTV, liquidation threshold, borrow availability, caps and rate parameters.

    Locator: Key Reserve Parameters; Dynamic Parameters and Governance · Version / scope: Aave V3 documentation · Retrieved: 2026-10-02T17:03:44.647ZOpen source
  2. PoolAave

    Collateralization, available liquidity and liquidation operations.

    Locator: supply; withdraw; borrow; liquidationCall · Version / scope: Aave V3 documentation · Retrieved: 2026-10-02T17:03:44.834ZOpen source
  3. Health Factor & LiquidationsAave

    Weighted-threshold health factor, changing collateral/debt values and liquidation incentives; live close-factor values are not assumed universal.

    Locator: Health Factor; Managing Health Factor; Liquidation Process · Retrieved: 2026-10-02T17:59:03.725ZOpen source
  4. Aave V3 ReserveLogicAave

    Cumulative supply and borrow indexes update accounting over time.

    Locator: getNormalizedIncome; getNormalizedDebt; updateState · Version / scope: aave-v3-core v1.19.3 · Retrieved: 2026-10-02T17:03:44.467ZOpen source
How this article was made

Research and drafting use AI assistance. A separate automated review checks claims against primary sources; no external expert or named human review is implied. Publication, substantive editing, source retrieval and verification are recorded separately. This version was independently checked by an automated reviewer on 2 October 2026.

Editorial method and corrections

Degrees of Satoshi editorial project. “LTV and liquidation threshold: two different collateral limits.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/loan-to-value-vs-liquidation-threshold/