Liquidations on Aave

Liquidations on Aave occur when the Health Factor of a position dips below 1. Depending on how low the Health Factor is, either a partial or full liquidation of the position can occur. This is known as Spark's "Variable Liquidation Close Factor".

The criteria are:

  • If the Health Factor is below 1 but above 0.95, AND both the collateral and debt values are at least $2,000 each - Up to 50% of the position can be liquidated.

  • If the Health Factor is 0.95 or below, OR when either the collateral or debt value is below $2,000 - Then 100% of the position's collateral can be liquidated.

Liquidators repay part or all of a borrower’s debt and receive the borrower’s collateral plus a bonus, but competition is intense, requiring constant monitoring and fast, automated execution to capture profitable opportunities.

Because only positions with enough remaining value can be partially liquidated, and because being first matters, most successful liquidators rely on custom bots and a strong technical understanding of how Aave works.

The liquidation penalty amount varies per collateral asset, and can be viewed by hovering over the Market Info section for the collateral assets.

How to avoid liquidations on Aave

Seeing as the main factors that influence your risk of liquidation are the value of your collateral and debt, the most basic tools to keep you safe are Supply (supplying more collateral) and Pay Back (repaying your debt directly from your wallet).

However, DeFi Saver offers more advanced tools that make keeping your position safe more efficient. These include:

  • Repay - By utilizing a flash loan, it lets you clear your debt using your collateral directly from the position.

  • Collateral switch - Allows you to change your collateral asset to a stablecoin so you're no longer affected by price falls.

  • Automations - Include Repay on target price and Automated Leverage Management, which maintains your position at a specific Safety Ratio range by using automated Repays.

  • Close - Unwinds your position in one transaction. It achieves this by utilizing a flash loan to clear all of your debt using the collateral from your position, and withdrawing the remaining collateral to your main (EOA) wallet.

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