Health Factor

Formula

health_factor = (Σ collateral_value_usd × liquidation_threshold) / total_debt_value_usd

Interpretation

Health Factor	Status	Action
≥ 1.0	Safe	Position is healthy
< 1.0	Liquidatable	Can be liquidated
No debt	Infinite	No risk

In the UI, health factor is displayed as a percentage where 100% = no debt, closer to 0% = higher liquidation risk, and 0% indicates liquidation.

Liquidation Threshold

Each pool has a liquidation threshold that determines the maximum borrowing power of that collateral:

Asset	Liquidation Threshold	Meaning
BTC	80%	Can borrow up to 80% of BTC collateral value
ETH	85%	Can borrow up to 85% of ETH collateral value
USDT	90%	Can borrow up to 90% of USDT collateral value

More volatile assets have lower thresholds to provide a larger safety buffer.

Weighted Average Threshold

When a user has collateral across multiple pools, the weighted average liquidation threshold determines overall borrowing capacity:

weighted_threshold = Σ (position_collateral_usd × pool_threshold) / total_collateral_usd

Example

User has:
  - $10,000 in BTC (LT = 80%)
  - $5,000 in ETH (LT = 85%)
  
Total collateral: $15,000

Weighted threshold:
  (10000 × 0.80 + 5000 × 0.85) / 15000 = 0.8167 (81.67%)

Health Factor Calculation

Using the weighted threshold:

health_factor = (total_collateral × weighted_threshold) / total_debt

Example

User has:
  - $15,000 collateral (weighted threshold = 81.67%)
  - $6,000 debt

Health factor:
  (15000 × 0.8167) / 6000 = 2.04

Status: Safe (HF > 1.0)

Health Factor vs Health Factor Percentage

The protocol uses two representations of position safety:

Health Factor (HF): Traditional decimal format (e.g., 2.04, 1.33, 0.96). Values above 1.0 are safe, below 1.0 are liquidatable.
Health Factor Percentage (HF%): Percentage format displayed in the UI (e.g., 51%, 80%, 0%). 100% = no debt, 0% = liquidatable.

Users can toggle between these formats in General Settings based on their preference.

Health Factor States

State Descriptions

State	Health Factor	What Happens
Healthy	> 1.2	Normal operation
Warning	1.0 - 1.2	Warning zone, consider adding collateral
Liquidatable	< 1.0	External liquidators can act
Partial Liquidation	0.95 - 1.0	Up to 50% of debt can be repaid
Full Liquidation	< 0.95	Up to 100% of debt can be repaid

What Affects Health Factor

Decreases Health Factor (More Risk)

Borrowing more assets
Withdrawing collateral
Collateral price dropping
Debt accruing interest
Collateral asset price falling relative to debt asset

Increases Health Factor (Less Risk)

Repaying debt
Adding more collateral
Collateral price increasing
Debt asset price falling relative to collateral

Practical Example

Starting position:

Collateral: 1 BTC @ $50,000 = $50,000 (LT = 80%)
Debt: $30,000 USDC
Health Factor: (50000 × 0.80) / 30000 = 1.33 ✓ Safe

After BTC drops 20%:

Collateral: 1 BTC @ $40,000 = $40,000
Debt: $30,000 USDC
Health Factor: (40000 × 0.80) / 30000 = 1.07 ⚠️ At Risk

After BTC drops another 10%:

Collateral: 1 BTC @ $36,000 = $36,000
Debt: $30,000 USDC
Health Factor: (36000 × 0.80) / 30000 = 0.96 🔴 Liquidatable

Monitor your health factor regularly, especially during volatile market conditions. Maintaining a higher health factor provides a larger safety buffer against liquidation.

Price Oracle Integration

Health factor calculations rely on accurate price data from the price oracle:

Prices are fetched from multiple sources
60-second cache to prevent manipulation
Deviation alerts for unusual price movements

The protocol uses USD-denominated prices to calculate collateral and debt values across different assets.

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