An account's health factor is a measure of the account's collateralization levels. It is based on the account's total liability value, collateral value, and collateral liquidation factors.
To originate a loan, a user must ensure their health factor will be above 1.10 after the loan has been originated. If a user account's health factor falls below 1.00, their positions can be liquidated until their health factor reaches 1.02. See a rough health factor scale below:
An accounts health factor is calculated with a user's liability value (outstanding loan value + accrued interest), collateral value, and the loan-to-value ratio of their collateralthis formula.
$$ H=\frac {\sum^{|C|}{i=1}LtVi*V{ci}} {\sum^{|L|}{i=1}V{li}} $$
Where:
-
$$H=$$ the account's health factor -
$$|C|=$$ the number of collateralized assets held by the account -
$$LtV_i=$$ the loan-to-value ratio for collateral asset$$i$$ -
$$V_{ci}=$$ the collateral value of collateral asset$$i$$ -
$$|L|=$$ the number of outstanding loans held by the account -
$$V_{li}=$$ the liability value of loaned asset$$i$$
Liquidation factors are assigned to supported assets by the protocol, and they govern the point at which an account's positions can be liquidated.
A user can increase their health factor by depositing more collateral or decreasing their liability value (e.g. repaying their loans).