Borrow limit vs liquidation threshold

Capacity to open debt and eligibility for forced repayment are different boundaries.

Look at	Borrow limit	Liquidation threshold
Purpose	Limits new borrowing against eligible collateral.	Defines when a position may be liquidated.
Typical expression	Collateral value × allowed loan-to-value ratio.	Sum of each collateral value × its liquidation threshold, compared with debt.
Illustrative settings	A 70% maximum borrowing LTV.	An 80% liquidation threshold.
After a price drop	New borrowing may become unavailable.	Crossing the threshold can permit liquidators to act.
Safety implication	Borrowing the maximum leaves limited room for adverse moves.	Liquidation eligibility does not prove that assets are already worth less than debt.

THE KEY DISTINCTION

What to carry forward

Specific rules vary by market, asset, version, and risk mode. The values here teach the distinction and are not current Aave parameters.

MAKE IT CONCRETE

With $1,000 of collateral, illustrative 70% LTV permits $700 debt. An 80% liquidation threshold places the boundary at $875 collateral value for the same debt, before interest.

Borrowing creates an obligation in the borrowed asset. Collateral provides a recovery path if the position breaches its rules.

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Collateral is a recovery asset. Its quantity, market value, liquidity and permitted use all affect how much credit it can support.

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Liquidation repays debt by transferring collateral. It can begin before insolvency, and it does not guarantee complete recovery.

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