💟Health Factor

Protecting against liquidation.

The Health Factor displayed for any position is indicative of the safety of your deposits against the combination of any borrowed assets & their value. The safety of your funds from a potential liquidation is represented by this number. The higher the number, the safer the position.

When the Health Factor of a position is 1 or lower, a liquidation will be triggered. When a liquidation occurs, up to 50% of the borrowing debt will be repaid. In addition, that value plus a liquidation fee is taken from your available collateral. The amount liquidated from your debt is repaid following a liquidation.

Health factor is determined based on the liquidation threshold of your collateral against the value of your borrowed assets. For each loan, these risks parameters enable the calculation of the health factor:

$H_f = \frac{ \sum{Collateral_i \: in \: ETH \: \times \: Liquidation \: Threshold_i}}{Total \: Borrows \: in \: ETH \: + \: Total \: Fees \: in \: ETH}$

A loan is defined as undercollateralized when $H_f < 1$. In this scenario, the loan may be liquidated to maintain solvency.

Health Factor Variability

The Health Factor will increase or decrease depending on the fluctuation in the underlying token value of your deposits.

The fluctuation in value of your underlying deposits will cause your Health Factor to increase or decrease.

For example, let's say you deposit ETH as collateral and use that to borrow USDB. If the value of your ETH decreases due to market conditions, the total underlying value of your collateral will also decrease. As a result, your Health Factor would be negatively impacted and there would be an increased risk of liquidation.

Maintaining a strong Health Factor provides two-fold flexibility:

1. Lower risk of liquidation when fluctuating assets are used as collateral (low-risk strategy)

2. Improves borrowing eligibility to leverage additional collateral (high-risk strategy)