Aave Liquidation Example: What Actually Happens
Follow a concrete Aave liquidation scenario with real numbers. Understand how health factor drops, when liquidation triggers, and what you lose.
The Position
Alice deposits 10 ETH (worth $20,000) on Aave v3 Polygon and borrows $12,000 USDC. Her health factor starts at approximately 1.67 — well above the safe threshold.
The Price Drop
ETH drops 20% in value. Alice's collateral is now worth $16,000. Her health factor drops to approximately 1.11 — entering the danger zone.
Liquidation Occurs
ETH drops further to $14,000 total collateral. Health factor falls below 1.0. A liquidator repays $6,000 of Alice's USDC debt and receives $6,600 worth of ETH (10% bonus). Alice loses $600 in value.
What Guardian Rescue Would Have Done
If Alice had signed a Guardian Rescue authorization before the liquidation, Guardian would have repaid her debt using a flash loan and her own collateral, charging a maximum of $300 (2.5%) instead of the $600 liquidation penalty.