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. 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:

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

Ccv=Ξ£1nCicv,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. 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. 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.

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