The ”health factor” metric is a representation of the status of your assets (supplied vs borrowed), and the underlying value of those assets. A higher value indicates a healthier collateral coverage asset ratio and a safer margin against liquidation. If the health factor reaches a specific threshold, the assets are at risk of triggering a liquidation event. If the health factor falls below the threshold, there is a high likelihood of liquidation occurring.
The health factor is located at the top of the screen, under the “Your Balances” card.
Additionally, the health factor will display in the “Borrow” window, which displays a dynamic estimate based on how much will be borrowed.
The health factor value will increase or decrease in response to the fluctuation of value of the assets. If the health factor increases, the borrow position is improved and there is a greater margin of safety from the liquidation threshold. In the event of the value of the collateralized assets ratio decreasing, the health factor is reduced which increases the risk of liquidation.
A healthy value is indicated with a green indicator.
As the user approaches a higher risk score, it will be indicated with a yellow indicator.
As a user approaches a higher risk of liquidation, the indicator becomes red. Additionally, the user is prompted to acknowledge the higher risk of liquidation before they can borrow.
The health factor value can be improved by the following:
- 1.Closing the balance by repaying the loan. This will have the most impact on the health factor value.
- 2.Adding more collateral. This will have some impact on the health factor value, but not as much as repaying the loan balance
There is no set time for repayments. The loan repayment is determined by the health factor value. As long as the health factor stays above 1, the loan remains open in perpetuity. When the health factor value falls below 1, it will trigger a liquidation event of the users assets to recover the loan.