⚠️ Risks & Security

Health Factor

Numerical indicator of a lending position's safety relative to liquidation threshold

Definition

Health factor is a numerical indicator of the safety of a lending position, representing the ratio between collateral value and borrowed value adjusted by liquidation thresholds. A health factor above 1 means the position is safe; below 1 means it can be liquidated. The higher the health factor, the safer the position but the lower the capital efficiency.

Health Factor is a risk term used to understand Numerical indicator of a lending position's safety relative to liquidation threshold. In practice, it matters because it affects how users evaluate protocols, compare opportunities, and avoid hidden assumptions.

Example

With a health factor of 1.5, your position has a 50% safety buffer before liquidation. If your collateral drops in value or your debt increases, the health factor falls toward 1.

How it works

In practice, the concept shows up like this: With a health factor of 1.5, your position has a 50% safety buffer before liquidation. If your collateral drops in value or your debt increases, the health factor falls toward 1.

Why it matters

Health Factor matters because small misunderstandings in DeFi can turn into bad pricing, liquidation, governance, custody, or smart-contract risk. A good mental model helps you compare protocols without relying on marketing language.

What to check

Treat it as a risk term: identify the failure mode, who can be harmed, and what evidence would reduce that risk. The main checks are: Rapid health factor drops during volatility; Liquidation cascade risk; Oracle delay risk.

Risks to Consider

Rapid health factor drops during volatility
Liquidation cascade risk
Oracle delay risk

Common Questions

What's a safe health factor?

It depends on the asset volatility. For volatile assets, a health factor of 2+ is recommended. For stablecoins, 1.5 may suffice. Always monitor during market turbulence.

What does Health Factor mean in DeFi?

Health Factor means Numerical indicator of a lending position's safety relative to liquidation threshold. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.

How is Health Factor used in practice?

A practical example: With a health factor of 1.5, your position has a 50% safety buffer before liquidation. If your collateral drops in value or your debt increases, the health factor falls toward 1.