Health Factor

The health factor (HF) measures how well-collateralised a position is. When HF < 1.0, the position is liquidatable.

Formula

HF = (deposit_balance × liquidation_threshold) / current_debt

Where:

• deposit_balance = deposit_shares × supply_index / WAD
• current_debt = borrow_principal × (borrow_index_current / borrow_index_snapshot)
• liquidation_threshold = default 80% (WAD-scaled: 800_000_000_000_000_000)

Thresholds

Source: programs/src/math.rs::health_factor returns u128::MAX when debt_balance == 0.

LTV vs Liquidation Threshold

• LTV (Loan-to-Value): Maximum borrow ratio at origination. Default 75%. A user with $1,000 deposited can borrow at most $750.
• Liquidation Threshold: The ratio at which an existing position becomes liquidatable. Default 80%. This gives a 5% buffer between max borrow and liquidation.

This gap is intentional — small price moves won’t immediately liquidate a position that’s at its LTV cap.

Computing Health Factor Off-Chain

const WAD = 1_000_000_000_000_000_000n;
 
const U128_MAX = (1n << 128n) - 1n;
 
function healthFactor(
  depositBalance: bigint,
  debt: bigint,
  liqThreshold: bigint,  // WAD-scaled, e.g. 800_000_000_000_000_000n for 80%
): bigint {
  if (debt === 0n) return U128_MAX;
  // (depositBalance × liqThreshold / WAD) × WAD / debt
  //                                  = (depositBalance × liqThreshold) / debt
  return (depositBalance * liqThreshold) / debt;
}
 
function isLiquidatable(hf: bigint): boolean {
  return hf < WAD;
}

Example: At-Risk Position

Deposit:      10,000 USDC
Borrow:        8,500 USDC

HF = (10,000 × 0.80) / 8,500
   = 8,000 / 8,500
   = 0.941  <-- below 1.0, liquidatable

Liquidation Parameters

Liquidation math:

repay          = current_debt × close_factor
seized         = repay × (1 + liquidation_bonus)
liquidator_gets = seized × (1 - protocol_liq_fee)
protocol_gets  = seized × protocol_liq_fee