Health Factor

The health factor is the numeric representation of the safety of your deposited NFTs against the borrowed assets and its underlying value. The higher the value is, the safer the state of your funds are against a liquidation scenario.

For each wallet, the LTV and Liquidation threshold risks parameters enable the calculation of the health factor:

H_f = \frac{\sum Collateral\: value\,_i \:\times\:Liquidation\:Threshold\:_i}{Total \: Borrows\:value}

When $H_f < 1$ the position may be liquidated to maintain solvency.

Depending on the value fluctuation of your deposits, the health factor will increase or decrease. If your health factor increases, it will improve your borrow position by making the liquidation threshold more unlikely to be reached. In the case that the value of your collateralized NFTs against the borrowed assets decreases instead, the health factor is also reduced, causing the risk of liquidation to increase.

How to interpret your Health Factor

• 0.0 < HF < 1.0: Dangerous, borrower may lose collateral if the debt is not repaid as soon as possible.

• 1.0 <= HF <= 1.5: Risky, borrower should repay part of the debt timely.

• 1.5 < HF < 2.0: Careful, borrower should pay attention and monitor their debt.

• 2.0 <= HF: Safe, the loan is at no close risk of liquidation.

Liquidation will be triggered if the Liquidation Threshold is surpassed.

Liquidation Threshold

The liquidation threshold is the percentage at which a position is defined as undercollateralized.

For example, a Liquidation threshold of 80% means that if the value rises above 80% of the collateral, the position is undercollateralized and could be liquidated after several warnings, according to the Borrower Grace Period.

The delta between the Loan-To-Value and the Liquidation Threshold is a safety cushion for borrowers.