Health Factor (Lending)
A metric indicating the safety of a borrower’s loan relative to collateral value.
What is Health Factor (Lending)?
Health factor measures a loan’s risk by comparing collateral value to the borrowed amount, adjusted for liquidation thresholds. A health factor above 1 indicates safety; below 1 triggers liquidation. For example, $2,000 collateral for a $1,000 loan with an 80% LTV cap yields a health factor of 1.25. Aave and Compound display this metric to help borrowers manage risk.
In 2025, protocols integrate health factor alerts via dashboards, reducing user losses. During 2024’s volatility, loans with health factors below 1.5 faced higher liquidation rates, emphasizing the need for proactive collateral management.
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