How Aave Liquidation Works

Aave liquidation is what happens when your collateral stops comfortably covering your loan. A number called the health factor tracks the gap. Once it falls below 1, anyone in the world may repay part of your debt and take some of your collateral, plus a bonus, in exchange. No person at Aave decides this and no warning email goes out. It is code, and it runs the second the condition is met.

What makes a loan liquidatable?

Every collateral asset has a liquidation threshold - the share of its value you are allowed to owe against it. For ETH that is commonly around 80%. Your health factor is just a measure of how far you sit from that line, and it can fall two ways. The obvious one is the price of your collateral dropping. The quieter one is your debt growing: interest accrues every block, so a loan left untouched for months drifts toward the line on its own.

Who actually liquidates you?

Not Aave. Independent bots do, and they race each other. A bot spots a health factor under 1, repays part of your debt in the token you borrowed - USDC, say - and receives your collateral at a discount, which is where its profit comes from. The race is why liquidations land within seconds of the threshold being crossed, usually before a human could open MetaMask and react.

How much can they take at once?

A limit called the close factor caps it. By default a liquidator may repay up to half your debt in one transaction. That rises to the whole debt when your health factor drops to roughly 0.95 or below, or when the amounts left behind would be too small for anyone to bother clearing later. Aave's newest version softens this further: the liquidator repays only as much as is needed to lift you back to a target health factor, and the bonus grows the deeper underwater the position is.

The practical takeaway is that liquidation is not a punishment aimed at you, it is an auction, and the auction opens the instant your number crosses 1. Keep a gap you can sleep through rather than one you have to watch, and know the price that would trigger it before you borrow. Our guide to what the health factor number means covers the maths behind it.