How Aave liquidations work

Aave loans have no due date and no credit check. What protects lenders instead is collateral, together with the rule that a loan which becomes too risky can be partly closed by someone else. That process is liquidation.

When a position can be liquidated

Every borrower has a health factor. While it is above 1, nobody can touch the position. Once it falls below 1, because the collateral lost value, the borrowed asset gained value, or interest built up, the position is open to liquidation. There is no margin call, no notice and no grace period.

Who liquidates

Anyone can. Liquidation is a public function on the Aave contracts. In practice it is done by automated bots that watch every position and compete to act first. A liquidator repays part of the borrower's debt with their own funds, often money borrowed for the length of a single transaction, and receives some of the borrower's collateral in return.

Aave itself does not sell your collateral, and no company decides when it happens. The rules are fixed in the smart contracts, which are described in the Aave documentation.

How much gets liquidated

A liquidation does not have to close the whole loan. The protocol applies a close factor, which caps the share of the debt that can be repaid in one liquidation. In general terms, a liquidator can repay up to a set portion of the debt, and in some situations all of it, for example when the health factor has fallen well below 1 or the position is small. The exact rules are part of the protocol and have been adjusted between versions.

After a liquidation the borrower has less debt and less collateral, and the health factor is usually back above 1. If it is not, the position can be liquidated again.

The liquidation bonus is the borrower's penalty

To make the work worthwhile, the liquidator receives collateral worth more than the debt they repaid. The extra is the liquidation bonus, and it comes out of the borrower's collateral. Each collateral asset has its own bonus, set by Aave governance, and riskier assets generally carry larger ones. A share of the bonus can go to the Aave treasury as a protocol fee.

Here is an example using the USDC setting on Ethereum Core at the time of writing (September 2026), where the bonus was 4.5%:

The borrower's debt does go down by 1,000 dollars, so the loss is the 45 dollar bonus, not the full 1,045. On larger positions, and on assets with higher bonuses, the penalty grows in proportion.

How to avoid liquidation

• Repay part of the debt. This is the most direct way to raise the health factor.
• Add collateral. More collateral, or less volatile collateral, gives more room.
• Borrow less than the maximum. Borrowing right up to the limit leaves almost no buffer.
• Remember that debt grows. Interest accrues every second, so a loan left alone drifts toward the threshold even if prices do not move.
• Check after big market moves. Liquidations cluster around sharp price drops.

You can model price moves with the health factor calculator, look up any address with the wallet checker, and see what recent events looked like on the liquidations page.