Aave LTV vs Liquidation Threshold
Maximum LTV defines how much you can borrow when initiating a loan, while Liquidation Threshold determines the point at which your existing loan becomes undercollateralized and vulnerable to liquidation.
Defining Loan-to-Value (LTV)
Loan-to-Value (LTV) represents the maximum borrowing capacity granted by a specific collateral asset. For instance, if an asset has an LTV of 80%, depositing $1,000 worth of that asset allows you to borrow up to $800 worth of debt.
LTV acts as an initial credit limit applied when opening or expanding a borrow position.
Defining Liquidation Threshold
Liquidation Threshold is the safety limit for active positions. It is always higher than the LTV ratio to provide a safety buffer.
If an asset has an LTV of 80% and a Liquidation Threshold of 85%, your loan is initiated at or below 80% borrowing capacity, but liquidation is not triggered until your debt value reaches 85% of your collateral value.
Key Differences at a Glance
Purpose: LTV dictates how much you can borrow upfront; Liquidation Threshold dictates when your position gets liquidated.
Value: Liquidation Threshold is strictly greater than LTV to absorb price movements before triggering liquidation.
Health Factor Link: Your Aave Health Factor is directly calculated using the Liquidation Threshold, not the LTV ratio.
Frequently Asked Questions
Q1.Why is Liquidation Threshold higher than Max LTV?
The gap between Max LTV and Liquidation Threshold acts as a safety cushion for borrowers against immediate price fluctuations upon borrowing.
Q2.Do all assets on Aave have the same LTV and Liquidation Threshold?
No. Each asset parameter is set by Aave governance based on market liquidity, volatility, and risk profile.
Q3.Does changing collateral affect my LTV and Liquidation Threshold?
Yes. Performing a collateral swap shifts your borrowing limits and risk thresholds to match the new asset.
Analyze Your Position Borrow Limits
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