Borrowing capacity is not a recommendation to use all available credit.
Collateral supports the debt
Overcollateralised lending protocols let users borrow against supplied assets. The relevant parameters include loan-to-value limits and liquidation thresholds. Aave describes health factor as collateral value adjusted by the applicable threshold, divided by borrowed value. A result below one can make a position eligible for liquidation. Parameters vary by asset and market and must be checked in the current deployment.
Calculate an example
Suppose fictional collateral is worth $1,000, its liquidation threshold is 80%, and debt is $500. The simplified health factor is 1.6. If collateral value falls to $600 while debt remains $500, the factor becomes 0.96. The example omits interest and other changes. It illustrates how a position can become eligible for liquidation without the borrower initiating a new transaction.
Interest and correlation also matter
Debt can grow through interest, while collateral and borrowed assets can change value differently. A high-looking initial number is not a permanent buffer. Aave’s borrowing documentation explains that rates respond to utilisation and protocol parameters. Operational access matters too: a plan to repay is less useful if the user cannot obtain the asset, access the network or act in time.
Read before interacting
Review asset parameters, oracle dependencies, available liquidity, fees and liquidation mechanics. Model more than one adverse scenario and include debt growth. A warning notification is helpful but should not be treated as guaranteed protection. This guide explains the accounting and control questions; it does not recommend leverage or a target health factor for an individual reader.
Sources & further reading
Sources checked 7 October 2026. Source-linked explanatory content; not personalised investment advice. Found an error? Request a correction.
