Lending collateral and liquidation

EN source master · P11-L05 · 30 minutes estimated · needs_review

Offline formative study. No wallet connection, real funds, private keys, signatures, live trade or personal portfolio inputs. Visuals are specifications; this is neither runtime content nor certification.

Collateral accounting explains a conditional lending mechanism, while leaving price, liquidity and contract dependencies unresolved.

Read two thresholds separately

Borrow capacity and liquidation threshold are distinct policy parameters. Aave documents health factor as collateral value times weighted liquidation threshold divided by debt value [AAVE]. This lesson uses one fictional collateral, no efficiency/isolation mode and no live reserve parameters. The supplied loan-to-value (LTV) ratio of 50% governs initial capacity; liquidation threshold75% governs health-factor arithmetic.

Health factor (HF) is a ratio; liquidation threshold (LT) is a policy parameter, distinct from LTV.

Trace price and debt effects

With collateral value1000 and debt 400, supplied capacity 500 and health factor750/400=1.875. If the oracle-marked collateral falls to 500 and debt accrues to 410, health factor375/410≈0.9146. Under our toy rule HF<1 permits liquidation. An oracle value is an input to that rule, not infallible market truth.

Account for the liquidator's incentive

The toy liquidator repays100 debt units and receives collateral marked at 105, a5% bonus. Debt falls to 310 and collateral marked value to 395. Assuming unchanged prices and no extra fees, new HF=395×0.75/310≈0.9556. One partial liquidation does not necessarily restore HF≥1. Exact close factors, dust limits and bonuses in real protocols are version/state-specific; current documentation is not a2023 incident-state snapshot.

Mechanism does not ensure repayment or safety

Unrealizable collateral, stale prices, debt interest, governance changes and unavailable execution can alter outcomes. Deposited value or TVL does not mean lenders can immediately withdraw the same amount; utilization and market liquidity matter. A calculation cannot prove solvent collateral or safe contracts. No loan or liquidator transaction is performed.

• LTV: supplied maximum initial borrowing ratio.
• Liquidation threshold: supplied value factor for eligibility.
• Health factor: threshold-adjusted collateral divided by debt.
• Bonus: stipulated additional collateral value for debt repayment.

ILLUSTRATIVE collateral 1000,debt 400,LTV50%,LT75%. Stress collateral 500,debt 410. Toy eligibilityHF<1; repayment100,bonus5%,no additional fee; same oracle price throughout partial liquidation. No real network or asset.

Contract-permissions/lending flow: collateral→threshold→HF; debt accrual and oracle inputs; repay100→collateral 105 seized; mark continuedHF<1. Do not render live protocol settings.

Conditional capacity, health factors and toy partial-liquidation accounting.

Actual oracle truth, liquidation execution, current reserve parameters, lender exit capacity or protocol safety.

• OBSERVED: FIX-P11-L05 stipulates LTV50% and LT75%.
• INFERRED: stressed HF 375/410<1 under supplied prices.
• UNKNOWN: actual oracle freshness and executable collateral value.
• INSUFFICIENT EVIDENCE: understanding liquidation proves a lending protocol safe.

• Using LTV as liquidation threshold.
• Assuming a partial liquidation always restores health.
• Treating marked collateral as cash.

Compute initial borrow capacity/HF and stressHF. Apply the100-unit repayment and 5% collateral bonus, then recomputeHF. Explain two assumptions that could invalidate the result.

Deliver calculations or annotations, claim/source table and limitations. Suggested allocation: study 12 minutes, exercise 8, correction/quiz 10; estimate subject to calibration.

• Keep LTV and LT separate.
• Include debt accrual and oracle assumptions.
• Trace debt and collateral together.
• Avoid current-state or safety claims.

Lending thresholds and liquidation incentives are conditional accounting rules. Their inputs and execution limits remain part of the finding.

• Distinguish borrow capacity from liquidation threshold.
• Trace a fictional debt repayment and collateral seizure.

P11-L06 after correction review.

NONE in the authoritative catalog. The supplied offline fixture/package is sufficient; no paid feature or unverified Production capability is required. Lab/certification metadata denotes downstream associations, not access gates or live awards.

• [AAVE] Aave — Health factor and liquidations — Collateral liquidation threshold, debt and liquidator incentives; live parameters excluded. Checked 2026-10-01; locator turn10view4.