Health factor

We compare the total current debt of the token with underlying loans current value and collateral(s) to determine the health.

$$Hf = \frac{C_{cv} + LA_{cv}}{L_{net}}$$

where,

$Hf =$ Health factor

$C_{cv} =$ Collateral current value in USD

$LA_{cv} =$ Loan account current value in USD

$L_{net} =$ Net liabilities (Original loan + interest) in USD

Note: For on-chain computations, we use USDT as base value to compute values.

Health is monitored at two levels:

1. dToken level: Determines the total health of the protocol for this asset

2. user loan level: Determines health of a user’s individual loan

dToken health:

$L_{net} =$ total value of the debt issued by the contract across the protocol

$C_{cv} = \Sigma_{1}^{n} C_{icv},$ n is the total number of supported collaterals, $C_{icv}$ is the net value of the ith collateral locked.

$LA_{cv}$ unspent loan amounts + Sum (spent loan amounts)

User loan health:

For the above loan discussed, the health factor can be computed as below:

1. Before partial withdrawl

   • $C_{cv} =$ 1 ETH * 100 = 100
   • $LA_{cv} =$ 300 USDC = 300
   • Assuming an interest of 2 USDC accrued,

     $L_{net} =$ 300 + 2 USDC = 302

So, Health factor $(Hf) =$ (100 + 300)/302 = 1.32

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1. Post spend

$LA_{cv}$ = 3 ETH x $100 = $300

So, Health factor $(Hf) =$ (100 + 300)/302 = 1.32

Health factor determines if a loan can be liquidated. Read Liquidations for more info.