Health factor is your DeFi liquidation gauge
One number tells you how safe a borrow is. Don't ride it near 1.0 β a wick can liquidate you. Compare the earn side on the crypto lending calculator.
Reading a health factor before it reads you
On Aave-style lending markets, your health factor is collateral value Γ liquidation threshold Γ· borrowed value. Above 1.0 you're alive; at 1.0 liquidators take your collateral, plus a penalty that's typically 5β10%.
The dangerous zone is anything under 1.5 with volatile collateral. ETH collateral at a health factor of 1.3 gets liquidated by a ~23% price drop β ETH does that in a bad week. Stablecoin collateral can run tighter, but then a depeg becomes your liquidation event instead.
Two things people miss: first, the liquidation threshold is lower than the max LTV you borrowed at, so you can be liquidatable without having borrowed "the max." Second, borrowing more of a volatile asset (shorting via borrow) means the borrow side grows against you β health factors can collapse from either direction. Set alerts at 1.6 and act at 1.4; waiting until 1.1 is how penalties happen.
FAQ
What is a DeFi health factor?
On lending protocols like Aave, health factor = (collateral Γ liquidation threshold) Γ· debt. Above 1 you're safe; at 1.0 you get liquidated. It's the single number that tells you how close your loan is to the edge.
How do I keep my position safe?
Keep the health factor comfortably above 1 β many aim for 1.5β2+. Add collateral or repay part of the debt when it drops. Volatile collateral can push it toward 1.0 fast in a sell-off.