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Health factor

We compare the total current debt of the token with underlying loans current value and collateral(s) to determine the health.
Hf=Ccv+LAcvLnetHf = \frac{C_{cv} + LA_{cv}}{L_{net}}
where,
Hf=Hf =
Health factor
Ccv=C_{cv} =
Collateral current value in USD
LAcv=LA_{cv} =
Loan account current value in USD
Lnet=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. 1.
    dToken level: Determines the total health of the protocol for this asset
  2. 2.
    user loan level: Determines health of a user’s individual loan

dToken health:

Lnet=L_{net} =
total value of the debt issued by the contract across the protocol
Ccv=Σ1nCicv,C_{cv} = \Sigma_{1}^{n} C_{icv},
n is the total number of supported collaterals,
CicvC_{icv}
is the net value of the ith collateral locked.
LAcvLA_{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. 1.
    Before partial withdrawl
    • Ccv=C_{cv} =
      1 ETH * 100 = 100
    • LAcv=LA_{cv} =
      300 USDC = 300
    • Assuming an interest of 2 USDC accrued,
      300 + 2 USDC = 302
So, Health factor
(Hf)=(Hf) =
(100 + 300)/302 = 1.32

  1. 2.
    Post spend
LAcvLA_{cv}
= 3 ETH x $100 = $300
So, Health factor
(Hf)=(Hf) =
(100 + 300)/302 = 1.32
Health factor determines if a loan can be liquidated. Read Liquidations for more info.