Health Factor & Liquidation
Every borrowing position has one number that summarizes its safety: the health factor. Above 1.0 your position is safe; at 1.0 it becomes eligible for liquidation. Understanding this number — and keeping a comfortable distance from 1.0 — is the whole art of borrowing safely.
The health factor#
healthFactor = borrowLimit / borrowedValue
= Σ(collateral × collateralFactor) / debtTwo things move it: prices (your collateral falling or your borrowed asset rising) and interest (debt grows slowly as borrow interest accrues). Repaying debt or adding collateral pushes it back up, immediately.
Health-factor simulator
Pick collateral, take out a loan, then crash the price — and watch where liquidation kicks in.
Comfortable buffer.
Collateral value
$1,000
Borrow limit
$700
70% of collateral
Drop to liquidation
−50%
price fall that sets HF to 1.0
What liquidation actually does#
If the health factor reaches 1.0, anyone may repay a portion of the position's debt and receive a matching slice of its collateral, plus a small bonus (the liquidation incentive) that makes doing so worthwhile. The point is not punishment — it's that the pool's depositors must never be left holding an underwater loan. Liquidation trims the position back to solvency; it doesn't seize everything.
Staying safe in practice#
- Borrow stable against stable — USDC collateral for a USDC-denominated need has almost no price risk.
- Leave headroom on volatile collateral — with XLM, using under half your limit means roughly a 50% price crash is needed before trouble.
- Watch the meter — the app shows your health prominently and colors it long before it's critical.
- React early — a small repayment at HF 1.3 is far cheaper than a liquidation at 1.0.
Interest alone can liquidate — eventually
Even with rock-stable prices, borrow interest compounds against you. A position parked just above its limit and forgotten will drift below 1.0 given enough time. Check in on open loans.