Health Factor
The Health Factor determines in a numerical value how healthy your collateral position is against the borrowed assets. The numerical value represents the safety of the deposited assets weighted against any borrowed assets and their underlying value. The numerical value of the Health Factor must be kept above 1 to avoid triggering liquidation.
When Health Factor drops below 1, the collateral is at risk of liquidation.
To determine the Health Factor of your position, the easiest way is to navigate to the dApp and check what your Health Factor is of your position. A user's Health Factor is displayed on various places on the user interface.
Important to note is that the Health Factor varies and can increase and decrease based on the fluctuations in value of the assets supplied as collateral.
For example, if you deposit ETH as collateral and borrow USDT with it, a drop in value of ETH will decrease your Health Factor and increase the risk of liquidation. Similarly if ETH appreciates in value, your Health Factor will improve, allowing a user to borrow more.
For assets supported on the protocol that fluctuate, it's important for users to manage the Health Factor as market volatility on tail-end assets can cause liquidations.
Assets fluctuate in value, manage your Health Factor and keep above 1
How to improve Health Factor?
Borrowers seeking to improve their Health Factor, can do so in two different ways.
Repaying off (part) the debt;
Supply more assets.
Of which repaying the loan would increase the Health Factor more.
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