Risks & Security
Health Factor
Threshold-adjusted collateral value divided by debt value
Definition
In Aave-style lending, health factor is collateral value weighted by liquidation thresholds divided by debt value. Below 1 the position is eligible for liquidation. Above 1 means a remaining threshold buffer, not a guarantee of safety; prices, interest and risk parameters can change it.
Example
With $10,000 collateral, an 80% liquidation threshold and $6,000 debt, health factor is 1.333. With debt and threshold fixed, a 25% collateral-value fall takes it to 1. A health factor of 1.5 tolerates a 33.3% fall, not 50%.
How it works
Each collateral asset contributes its oracle value multiplied by its liquidation threshold. The sum is compared with current debt; repayment or additional accepted collateral increases the ratio.
Risks to Consider
- Oracle price changes can consume the buffer abruptly
- Accrued interest raises debt and lowers health factor
- Threshold reductions can make a previously healthy position liquidatable
Common Questions
Is health factor a liquidation transaction?
No. It is the eligibility metric. Below 1, a liquidator may enforce repayment and seize collateral; execution depends on protocol rules and market conditions.
