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  "id": "loan-to-value-vs-liquidation-threshold",
  "canonical": "https://degreesofsatoshi.com/encyclopedia/loan-to-value-vs-liquidation-threshold/",
  "collection": "defi",
  "title": "LTV and liquidation threshold: two different collateral limits",
  "description": "Compare a lending position’s borrowing limit with its liquidation boundary using a clear collateral example and market-specific assumptions.",
  "aliases": [
    "LTV",
    "liquidation threshold"
  ],
  "dates": {
    "published": "2026-10-02",
    "modified": "2026-10-02",
    "verified": "2026-10-02T18:15:18.493Z",
    "dataAsOf": "2026-10-02"
  },
  "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": "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.",
    "claimId": "loan-to-value-vs-liquidation-threshold-quick-answer",
    "sourceIds": [
      "aave-reserve",
      "aave-pool"
    ]
  },
  "keyFacts": [
    {
      "label": "LTV",
      "value": "Aave describes LTV as maximum borrowing relative to collateral value.",
      "sourceIds": [
        "aave-reserve"
      ],
      "id": "ltv",
      "claimId": "loan-to-value-vs-liquidation-threshold-fact-ltv"
    },
    {
      "label": "Threshold",
      "value": "The liquidation threshold is used to assess liquidation risk.",
      "sourceIds": [
        "aave-reserve"
      ],
      "id": "threshold",
      "claimId": "loan-to-value-vs-liquidation-threshold-fact-threshold"
    },
    {
      "label": "Health factor",
      "value": "Aave’s liquidation flow targets positions with health factor below 1.",
      "sourceIds": [
        "aave-pool"
      ],
      "id": "health-factor",
      "claimId": "loan-to-value-vs-liquidation-threshold-fact-health-factor"
    }
  ],
  "prerequisites": [
    "collateral-and-health-factors"
  ],
  "sections": [
    {
      "id": "example",
      "heading": "Calculate both boundaries",
      "sourceIds": [
        "aave-reserve",
        "aave-health"
      ],
      "paragraphs": [
        "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."
      ]
    },
    {
      "id": "buffer",
      "heading": "Price and interest can erode the margin",
      "sourceIds": [
        "aave-health",
        "aave-reserve-logic"
      ],
      "paragraphs": [
        "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."
      ]
    },
    {
      "id": "parameters",
      "heading": "Keep the market and date attached",
      "sourceIds": [
        "aave-reserve"
      ],
      "paragraphs": [
        "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."
      ]
    }
  ],
  "faq": [
    {
      "question": "Is the liquidation threshold the amount I should borrow?",
      "answer": "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.",
      "sourceIds": [
        "aave-reserve",
        "aave-pool"
      ]
    }
  ],
  "claims": [
    {
      "id": "loan-to-value-vs-liquidation-threshold-quick-answer",
      "articleSlug": "loan-to-value-vs-liquidation-threshold",
      "statement": "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.",
      "sourceIds": [
        "source-15989fc372ee02a4",
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-15989fc372ee02a4",
          "locator": "Key Reserve Parameters; Dynamic Parameters and Governance"
        },
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; liquidationCall"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": "2026-10-02",
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Added Aave Health Factor & Liquidations to support the weighted-threshold formula and multiple-asset weighting directly. Pool alone describes eligibility but not the complete formula.",
          "Recomputed 1000*.75=750 initial capacity, 1000*.8=800 weighted collateral, 800/600=1.3333333333 and 750*.8/600=1. Boundary is described as reaching 1; eligibility remains under actual below-one/rounding rules."
        ]
      }
    },
    {
      "id": "loan-to-value-vs-liquidation-threshold-fact-ltv",
      "articleSlug": "loan-to-value-vs-liquidation-threshold",
      "statement": "LTV: Aave describes LTV as maximum borrowing relative to collateral value.",
      "sourceIds": [
        "source-15989fc372ee02a4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-15989fc372ee02a4",
          "locator": "Key Reserve Parameters; Dynamic Parameters and Governance"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": "2026-10-02",
        "blockHeight": null
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      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
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        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Added Aave Health Factor & Liquidations to support the weighted-threshold formula and multiple-asset weighting directly. Pool alone describes eligibility but not the complete formula.",
          "Recomputed 1000*.75=750 initial capacity, 1000*.8=800 weighted collateral, 800/600=1.3333333333 and 750*.8/600=1. Boundary is described as reaching 1; eligibility remains under actual below-one/rounding rules."
        ]
      }
    },
    {
      "id": "loan-to-value-vs-liquidation-threshold-fact-threshold",
      "articleSlug": "loan-to-value-vs-liquidation-threshold",
      "statement": "Threshold: The liquidation threshold is used to assess liquidation risk.",
      "sourceIds": [
        "source-15989fc372ee02a4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-15989fc372ee02a4",
          "locator": "Key Reserve Parameters; Dynamic Parameters and Governance"
        }
      ],
      "scope": {
        "collection": "defi",
        "dataAsOf": "2026-10-02",
        "blockHeight": null
      },
      "qualification": "",
      "evidenceStatus": "documented",
      "verification": {
        "status": "verified",
        "method": "independent automated source review",
        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Added Aave Health Factor & Liquidations to support the weighted-threshold formula and multiple-asset weighting directly. Pool alone describes eligibility but not the complete formula.",
          "Recomputed 1000*.75=750 initial capacity, 1000*.8=800 weighted collateral, 800/600=1.3333333333 and 750*.8/600=1. Boundary is described as reaching 1; eligibility remains under actual below-one/rounding rules."
        ]
      }
    },
    {
      "id": "loan-to-value-vs-liquidation-threshold-fact-health-factor",
      "articleSlug": "loan-to-value-vs-liquidation-threshold",
      "statement": "Health factor: Aave’s liquidation flow targets positions with health factor below 1.",
      "sourceIds": [
        "source-b35859a766315ce4"
      ],
      "sourceLocators": [
        {
          "sourceId": "source-b35859a766315ce4",
          "locator": "supply; withdraw; borrow; liquidationCall"
        }
      ],
      "scope": {
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        "dataAsOf": "2026-10-02",
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      "qualification": "",
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        "checkedAt": "2026-10-02T18:15:18.493Z",
        "reviewer": "automated independent verification — DeFi expansion reviewer",
        "notes": [
          "Added Aave Health Factor & Liquidations to support the weighted-threshold formula and multiple-asset weighting directly. Pool alone describes eligibility but not the complete formula.",
          "Recomputed 1000*.75=750 initial capacity, 1000*.8=800 weighted collateral, 800/600=1.3333333333 and 750*.8/600=1. Boundary is described as reaching 1; eligibility remains under actual below-one/rounding rules."
        ]
      }
    }
  ],
  "sources": [
    {
      "id": "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",
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      "id": "aave-pool",
      "label": "Pool",
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      "url": "https://aave.com/docs/aave-v3/smart-contracts/pool",
      "locator": "supply; withdraw; borrow; liquidationCall",
      "note": "Collateralization, available liquidity and liquidation operations.",
      "version": "Aave V3 documentation",
      "checkedAt": "2026-10-02T17:03:44.834Z",
      "contentSha256": "73645ef223ef64419c7301794cfc4089bc79b6bfce71373b0125fd5e9a78f1b2",
      "recordId": "source-b35859a766315ce4"
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    {
      "id": "aave-health",
      "label": "Health Factor & Liquidations",
      "publisher": "Aave",
      "url": "https://aave.com/help/borrowing/liquidations",
      "locator": "Health Factor; Managing Health Factor; Liquidation Process",
      "note": "Weighted-threshold health factor, changing collateral/debt values and liquidation incentives; live close-factor values are not assumed universal.",
      "version": null,
      "checkedAt": "2026-10-02T17:59:03.725Z",
      "contentSha256": "512ab68ac2d3922caad45b9aaad7316daec23a23a6e249dbb2013a429021bc23",
      "recordId": "source-74f79d59daaab5f0"
    },
    {
      "id": "aave-reserve-logic",
      "label": "Aave V3 ReserveLogic",
      "publisher": "Aave",
      "url": "https://raw.githubusercontent.com/aave/aave-v3-core/v1.19.3/contracts/protocol/libraries/logic/ReserveLogic.sol",
      "locator": "getNormalizedIncome; getNormalizedDebt; updateState",
      "note": "Cumulative supply and borrow indexes update accounting over time.",
      "version": "aave-v3-core v1.19.3",
      "checkedAt": "2026-10-02T17:03:44.467Z",
      "contentSha256": "6b827ea494fa5bb1b38fa9e7db973bd0aed0ee3d53677cac950f6614cb8fd0c9",
      "recordId": "source-7f081b54ee6558ab"
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  ],
  "related": {
    "articles": [
      "defi-liquidations",
      "liquidation-bonus",
      "borrow-caps"
    ],
    "dossiers": [],
    "wallets": []
  },
  "revisionHistory": [
    {
      "date": "2026-10-02",
      "kind": "published",
      "summary": "First publication after primary-source research and independent automated verification."
    }
  ],
  "citation": "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/"
}