Health Factor

The safety of each user’s collateral and overcollateralized status of their loan is indicated by a numeric value known as the Health Factor.

The value of the collateral must always exceed the value of the loan to remain overcollateralized. Should the values of the involved assets change, the Health Factor adjusts accordingly. A higher Health Factor indicates that their collateral is safe from liquidation at that time. Health Factor decreases as the value of the loan approaches the value of the collateral, so a Health Factor of 1 indicates that the value of the loan is approaching the liquidation threshold.

If the health factor drops below 1, the position is at risk of liquidation — the process of selling collateral on the open market to repay the excess value of a borrower’s loan. Borrowers can either deposit additional collateral or pay back enough of their loan to maintain a safe ratio and prevent their collateral from being liquidated.

The Health Factor is calculated based on your total loan-to-collateral ratio, ranging from 100 to 0. A health factor below 1.25 puts you at risk of liquidation. When the health factor hits 1, the borrower's collateral will be liquidated.

To improve their loan’s health, borrowers can repay part or the full amount of the borrowed sum. Alternatively, they can supply more collateral to push the health factor back up above 1.