A concrete example
10,000 × 80% ÷ 6,000 is approximately 1.33. Below 1 a position becomes liquidatable.
In context
The permitted liquidation fraction depends on the version and market conditions. Liquidation is not a stop-loss promising a particular exit price. Price gaps, oracle behaviour and congestion can make an apparently manageable position deteriorate before an owner can react.
The related mechanism, visually
- 01Position eligible
- 02Liquidator repays debt
- 03Collateral transferred
- 04Remaining position recalculated
Read these as connected concepts, not necessarily consecutive steps.
Read the explanation
Liquidation is a protocol-permitted action when a position meets specified conditions. A liquidator repays eligible debt and receives collateral according to the market’s rules, often with an incentive. It is not necessarily a sale of the entire position, and the permitted fraction can depend on the deployment and position state.
Put the mechanism into context
In a toy liquidation, a liquidator repays 100 units and receives collateral valued at 105. Ignore protocol fees, slippage and caps. Make a before/after table for borrower debt, borrower collateral and liquidator cash flows. The 5% incentive is fictional.
Apply it in the workshop →What this mechanism does not guarantee
Health factor is a snapshot, not a timer. Fast prices, oracle updates, debt accrual and transaction congestion can change the outcome before a protective transaction executes. Liquidation incentives do not guarantee profitable participation during every market shock; insufficient liquidity can create bad-debt risk.
Explore the full explanation
Aave health factor and liquidation
The health factor is threshold-weighted collateral value divided by total debt value.