health factor

The health factor is a single number that tells a borrower how close they are to being liquidated, popularized by Aave. When it is comfortably above 1 the position is safe; the instant it touches 1 or below, the position becomes eligible for liquidation. It rolls the messy details of multiple collaterals, multiple debts, and per-asset risk parameters into one easily watched dial, which is why borrowers and keeper bots alike monitor it continuously.

It is computed as the sum of each collateral's value multiplied by its own liquidation threshold, divided by the total value of the debt. The per-asset liquidation threshold (say 0.825 for ETH) is a haircut reflecting how risky that collateral is: volatile assets get a lower threshold, so they count for less. A health factor of 2 means your risk-adjusted collateral is twice your debt; a health factor of 1.05 means a small price dip will push you under. Unlike a raw collateralization ratio, it correctly blends a basket of different assets each with its own risk weight.

Borrowers raise their health factor by adding collateral or repaying debt, and they watch it fall as collateral prices drop or borrowed-asset prices rise. Because every price update can move it, sophisticated users automate alerts or auto-deleveraging when it nears danger. A subtle point: the health factor is only as trustworthy as the oracle prices feeding it, so a brief oracle glitch or manipulation can momentarily report a healthy position as liquidatable, or vice versa.