What is a health factor
One number tells you how close your loan is to liquidation. Above 1 you're safe; at 1 the liquidators arrive. Keep a buffer.
The health factor is a single number that measures how safe a borrowing position is against liquidation.
What it represents
Conceptually, it relates the value of your collateral — adjusted by each asset's liquidation threshold — to the value of your debt. Roughly:
health factor = (collateral × liquidation threshold) ÷ total debt
When it's above 1, your position is safe. When it drops to 1 or below, the position becomes eligible for liquidation: liquidators repay part of your debt and take your collateral at a discount (a penalty), to protect the protocol's solvency.
What moves it
The health factor falls for two reasons:
- The price of your collateral drops, lowering the numerator.
- Your debt grows with accrued interest, raising the denominator.
This is why volatile collateral is dangerous — a sharp price drop can push the health factor below 1 quickly.
Keeping it safe
- Borrow well below the maximum and keep a comfortable buffer (a high health factor).
- Monitor it, especially in volatile markets.
- Be ready to add collateral or repay debt to raise it back up.
- More stable collateral (like stablecoins) and lower leverage keep it more resilient.
Why it matters. The health factor is your entire liquidation risk compressed into one glanceable number — the closest thing DeFi borrowing has to a fuel gauge. Positions rarely get liquidated because the market moved; they get liquidated because someone wasn't watching the gauge. A generous buffer is what turns a scary red candle into a non-event.
Educational information, not financial advice.