Risk
Health factor
If you track one number in this app, track this one. It tells you how far your position is from trouble, in a single figure.
Above 1 you are safe. Below 1 you can be liquidated. Everything else on this page is about how much room you have and how fast it moves.
The definition#
health factor = (collateral value × weighted liquidation threshold) ÷ debt
The numerator is what your collateral is worth at liquidation prices. The denominator is what you owe. A health factor of 2 means your collateral could halve before it becomes a problem.
With no debt, the health factor is infinite — the app shows ∞. It only becomes a number once you draw.
The thresholds#
Comfortable
≥ 2.00
collateral can halve
Watch
1.20–1.50
one bad session away
Deleveraging arms
1.10
protocol acts for you
Liquidatable
< 1.00
keepers may act
| Health factor | Status | What happens |
|---|---|---|
| ≥ 2.00 | Safe | Nothing. Large buffer. |
| 1.50 – 2.00 | Healthy | Nothing. Comfortable buffer. |
| 1.20 – 1.50 | Watch | Nothing yet, but consider repaying or adding collateral. |
| 1.10 – 1.20 | At risk | Last window to act on your own terms. |
| 1.00 – 1.10 | Deleveraging band | Smart Deleveraging sells the smallest slice to restore 1.35. |
| < 1.00 | Liquidatable | Any keeper may close up to 50% of the debt for a 5–8% bonus. |
What moves it#
Things that lower it
- Collateral prices falling. The dominant driver by far. A 10% basket drop lowers the health factor by roughly 10%.
- Borrowing more. Immediate and fully under your control. The app previews the resulting number before you confirm.
- Interest accruing. Slow but relentless. A position left untouched for a year at 4.17% sees its debt grow by that much.
- Withdrawing collateral. Blocked outright if it would take you below 1.
Market hours do not change your health factor
This trips people up. The market-hours haircut reduces your borrowing limit, not your liquidation threshold. When the US market closes your available credit shrinks, but an existing position does not become less healthy. See Market hours & oracles.
Things that raise it
- Repaying debt. Fastest lever, effective immediately.
- Depositing more collateral. Equally immediate.
- Collateral prices rising. Passive, and not something to rely on.
- Diversifying the basket. More legs raise the weighted liquidation threshold when you add lower-volatility assets.
How far can the market fall?#
The useful way to read a health factor is to convert it into a drawdown you can survive.
survivable drop = 1 − (1 ÷ health factor)
A health factor of 2.00 survives a 50% drop. 1.50 survives 33%. 1.10 survives 9%.
| Health factor | Basket can fall by | Feels like |
|---|---|---|
| 3.00 | 67% | A 2008-scale drawdown |
| 2.00 | 50% | A severe bear market |
| 1.50 | 33% | A Covid-March-2020 crash |
| 1.35 | 26% | A hard correction |
| 1.10 | 9% | A single bad week |
| 1.02 | 2% | A single bad session |
A worked position#
$100,000 basket · 68.4% weighted threshold · $30,000 drawn
Collateral at liquidation prices
$100,000 × 68.4%
Debt
Health factor
Survivable drawdown
Deleveraging triggers at
where health reaches 1.10
Draw $50,000 instead of $30,000 and the health factor falls to 1.37, with a survivable drawdown of 27%. The single biggest control you have is how much you draw.
Keeping it high#
- Draw well below your limit. The limit is what you may borrow, not what you should.
- Turn on auto-repay. Idle USDG in your wallet gets swept against the debt whenever health drops below 1.6. It costs nothing.
- Leave Smart Deleveraging enabled. Disabling it does not remove the risk, it removes the warning.
- Diversify. A four-asset basket both raises your LTV and lowers the chance that everything falls at once.
- Watch it before long weekends. Gap risk is highest exactly when you are least likely to be looking.
Stress-test your own position
Apply a shock from −60% to +20%, or jump straight to preset scenarios like the Covid crash and the GFC, and see exactly what the protocol would do.