# help understanding aave’s automatic liquidation threshold

H there – i’m trying to understand aave’s risk parameters/liquidation thresholds.

Ive read this doc on risk parameters:

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and id like to make sure I understand the liquidation threshold correctly; specifically how its denominated in eth.

Here is an example, assume eth is at \$1200usd

1. I provide .5 eth as collateral (\~\$600)
2. I borrow .17 eth of usdc (\~\$200)

**My loan to value is = .17/.5 = \~33%.**

**My health factor is = ( (.5 \*.85) / .17 ) = \~2.55** (note .85 is the liquidation threshold per docs)

Here is my question:

if eth goes from \$1200 to \$600 (1 eth = \$600), my collateral will be (.5 x 600) = \$300 in us denominated terms, **what happens?**

**I think:**

* At \$600 eth my \$200 usdc borrowed is = \~.33 (\$200/\$600)
* The collateral (.5 eth) is now worth \~ \$300usd
* This makes the ltv = .33/.5= \~.67

When I do the hf math i get:

= (.5 \* .85) / .33 = 1.275

Which is pretty close to auto liquidation right?

I’m trying to understand what happens if the underlying asset (eth) goes down relative to the borrowed asset (assume USDC).

I guess whats confusing to me is the doc talks about liquidation thresholds denominated in eth. In this example, eth denominated in USD goes down, but .5 eth is still .5 eth. maybe I’m just confused.

&#x200B;

Thank you in advance and please keep me honest if I’ve butchered any of this math .

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### 2 thoughts on “help understanding aave’s automatic liquidation threshold”

1. It will make your life easier if you just think of everything in terms of dollars. If the dollar value of 85% of your deposit (eth collateral factor) reaches the dollar value of your borrow, you will be liquidated (someone will come in and repay a portion of your borrow so that the loan can become healthy again, and in return they will get to withdraw some of your deposited collateral as a reward for themselves)