Example
You have $20,000 of ETH collateral, an 85% liquidation threshold and $10,000 of USDC debt. Health factor = ($20,000 × 0.85) ÷ $10,000 = 1.7 If ETH falls 30%, your collateral is worth $14,000, and the health factor drops to 1.19. If ETH falls about 41%, the health factor reaches 1 and the loan can be liquidated.What moves your health factor
What happens in a liquidation
When the health factor reaches 1, liquidators can repay part of your debt and take the same value of your collateral, plus a liquidation penalty. You keep the borrowed funds and the rest of your collateral, but you lose the penalty. How much of a loan is liquidated at once, and the size of the penalty, depends on the protocol and the market. Some protocols liquidate only enough to restore a healthy position.Staying safe
Borrow conservatively
Keep your LTV well below the maximum. A health factor of 1.5 or more leaves room for volatility.
Watch it in volatile markets
Your health factor is shown on every loan and in your Portfolio.
Add collateral
Depositing more collateral raises the health factor immediately.
Repay part of the debt
Repaying even a small part lowers your LTV.