# LTV and liquidation threshold: two different collateral limits

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.

Evidence: [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve); [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool)

Canonical: https://degreesofsatoshi.com/encyclopedia/loan-to-value-vs-liquidation-threshold/
Published: 2026-10-02
Substantively modified: 2026-10-02
Independently verified by an automated reviewer: 2026-10-02T18:15:18.493Z
Data current through: 2026-10-02

AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied.

## Key facts

- **LTV:** Aave describes LTV as maximum borrowing relative to collateral value. ([Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve))
- **Threshold:** The liquidation threshold is used to assess liquidation risk. ([Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve))
- **Health factor:** Aave’s liquidation flow targets positions with health factor below 1. ([Pool](https://aave.com/docs/aave-v3/smart-contracts/pool))

## 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.

Evidence: [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve); [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations)

## 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.

Evidence: [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations); [Aave V3 ReserveLogic](https://raw.githubusercontent.com/aave/aave-v3-core/v1.19.3/contracts/protocol/libraries/logic/ReserveLogic.sol)

## 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.

Evidence: [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve)

## Questions

### 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.

Evidence: [Reserve](https://www.aave.com/docs/aave-v3/concepts/reserve); [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool)

## Claims and scope

### loan-to-value-vs-liquidation-threshold-quick-answer

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: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

### loan-to-value-vs-liquidation-threshold-fact-ltv

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

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

### loan-to-value-vs-liquidation-threshold-fact-threshold

Threshold: The liquidation threshold is used to assess liquidation risk.

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

### loan-to-value-vs-liquidation-threshold-fact-health-factor

Health factor: Aave’s liquidation flow targets positions with health factor below 1.

Scope: {"collection":"defi","dataAsOf":"2026-10-02","blockHeight":null}

## Sources

- [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.
- [Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) — Aave. Collateralization, available liquidity and liquidation operations. Locator: supply; withdraw; borrow; liquidationCall. Retrieved: 2026-10-02T17:03:44.834Z.
- [Health Factor & Liquidations](https://aave.com/help/borrowing/liquidations) — Aave. 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: 2026-10-02T17:59:03.725Z.
- [Aave V3 ReserveLogic](https://raw.githubusercontent.com/aave/aave-v3-core/v1.19.3/contracts/protocol/libraries/logic/ReserveLogic.sol) — Aave. Cumulative supply and borrow indexes update accounting over time. Locator: getNormalizedIncome; getNormalizedDebt; updateState. Retrieved: 2026-10-02T17:03:44.467Z.

## Revision history

- 2026-10-02: First publication after primary-source research and independent automated verification.

## Cite this entry

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/