Monitoring your health factor
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 6 min
In short
A health factor expresses how far your collateral-to-debt position sits from the liquidation threshold. It changes continuously with prices, and the moment it crosses the line the position is liquidated automatically. Rather than just watching the number, work out in advance which price takes you into danger, and set up alerts.
Key points
- Crossing the threshold triggers automatic liquidation, with no contact and no grace period
- The number moves constantly with prices and accruing interest; a value you checked guarantees nothing
- Knowing the price level that puts you in danger lets you judge from the market alone
- Set price alerts so a sharp move while you sleep or travel does not go unnoticed
Definition
A number published by a lending protocol showing where your collateral value stands relative to your debt and the liquidation threshold. Falling below the reference level — often 1 — makes the position liquidatable.
Start with what the number means. A health factor is generally collateral value, adjusted by the protocol's liquidation weighting, divided by the debt. Higher means more room; approaching 1 means liquidation is near. Names and reference levels differ between protocols, so confirm the definition where you actually hold the position.
The practical starting point is not the number itself but the price at which you enter danger. Most protocols display the collateral price that would trigger liquidation, and where they do not, you can approximate it from the current factor and the current price. Work it out once and you can read your exposure straight off a chart, which is far more workable than reopening the dashboard each time.
Then set up notification. Put the price alert in front of the danger level, not on it. Noticing once you have arrived leaves no time to act: adding collateral or repaying part of the debt requires gas and confirmation time, and congestion delays exactly that. The point of the alert is to reach you while action is still possible.
People overlook the debt side. Interest accrues on the balance, so the factor drifts downward even in a completely flat market. A position left alone for months is often closer to the edge than its owner remembers. Build in a routine check, or at minimum revisit it every few months.
Finally, the limits of the indicator. It is computed from the price feed the protocol uses. In a broad sell-off, feed updates and liquidations bunch into a short window, and what you saw on screen can diverge from what actually executes. The health factor is a management tool, not a promise that you will not be liquidated.
Watch out for
- · Once the threshold is crossed, liquidation happens without notification or delay, whether or not you are looking at the screen
- · If the referenced price feed is briefly disturbed, a position that is healthy at true market prices can still be liquidated
- · Even with prices flat, accruing interest degrades the factor. Leaving a position untouched is not the safe option
Frequently asked questions
What value should I keep it at to be safe?
There is no value that can be called safe. The more volatile your collateral and the longer the stretches when you cannot react, the more headroom you need. Running close to the threshold means accepting, every day, that a single sharp move ends the position.