Glossary · H
Health Factor
A numeric score in DeFi lending protocols (Aave, Compound, Morpho) that represents the safety of a collateralised borrowing position. Health Factor = (collateral value × liquidation threshold) ÷ borrow amount. A health factor above 1 means the position is safe; below 1 triggers automatic liquidation. Maintaining a health factor of 1.5+ is a common recommendation for comfortable buffer against liquidation from market volatility.
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How Health Factor works in practice
Health factor is a single number expressing how close a borrowing position is to liquidation. Above 1 the position is safe; at or below 1 it can be liquidated. It combines collateral value, each asset's liquidation threshold, and total debt, so it moves with prices on both sides of the position.
Worked example
Collateral of 30,000 at an 85% liquidation threshold supports 25,500 before trouble. Against 24,000 of debt the health factor is 25,500 ÷ 24,000 = 1.06 — roughly a 6% fall in collateral value from liquidation. Repaying 4,000 of debt lifts it to 1.28.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Watching only your collateral's price. Borrowing a volatile asset means the debt side moves too: a position can be liquidated because what you borrowed appreciated, with the collateral untouched.
Health Factor: common questions
- What is Health Factor?
- A numeric score in DeFi lending protocols (Aave, Compound, Morpho) that represents the safety of a collateralised borrowing position. Health Factor = (collateral value × liquidation threshold) ÷ borrow amount. A health factor above 1 means the position is safe; below 1 triggers automatic liquidation. Maintaining a health factor of 1.5+ is a common recommendation for comfortable buffer against liquidation from market volatility.
- How does Health Factor work in practice?
- Health factor is a single number expressing how close a borrowing position is to liquidation. Above 1 the position is safe; at or below 1 it can be liquidated. It combines collateral value, each asset's liquidation threshold, and total debt, so it moves with prices on both sides of the position.
- Can you give an example of Health Factor?
- Collateral of 30,000 at an 85% liquidation threshold supports 25,500 before trouble. Against 24,000 of debt the health factor is 25,500 ÷ 24,000 = 1.06 — roughly a 6% fall in collateral value from liquidation. Repaying 4,000 of debt lifts it to 1.28.
- What do people get wrong about Health Factor?
- Watching only your collateral's price. Borrowing a volatile asset means the debt side moves too: a position can be liquidated because what you borrowed appreciated, with the collateral untouched.