Health Factor & Liquidation

Every borrowing position has one number that summarizes its safety: the health factor. Above 1.0 your position is safe; at 1.0 it becomes eligible for liquidation. Understanding this number, and keeping a comfortable distance from 1.0, is the whole art of borrowing safely.

The health factor#

healthFactor = borrowLimit / borrowedValue
             = Σ(collateral × collateralFactor) / debt

HF 2.0 = you're using half your limit. HF 1.1 = a 9% adverse move wipes your buffer.

Two things move it: prices (your collateral falling or your borrowed asset rising) and interest (debt grows slowly as borrow interest accrues). Repaying debt or adding collateral pushes it back up, immediately.

Health-factor simulator

Pick collateral, take out a loan, then crash the price, and watch where liquidation kicks in.

Collateral supplied$1,000

Borrowed (of your limit)50% · $350

XLM price change0%

Health factor2.00

Comfortable buffer.

Collateral value

$1,000

Borrow limit

$700

70% of collateral

Drop to liquidation

−50%

price fall that sets HF to 1.0

What liquidation actually does#

If the health factor reaches 1.0, anyone may repay a portion of the position's debt and receive a matching slice of its collateral, plus a small bonus (the liquidation incentive) that makes doing so worthwhile. The point is not punishment: it's that the pool's depositors must never be left holding an underwater loan. Liquidation trims the position back to solvency; it doesn't seize everything.

Staying safe in practice#

Borrow stable against stable: USDC collateral for a USDC-denominated need has almost no price risk.
Leave headroom on volatile collateral: with XLM, using under half your limit means roughly a 50% price crash is needed before trouble.
Watch the meter: the app shows your health prominently and colors it long before it's critical.
React early: a small repayment at HF 1.3 is far cheaper than a liquidation at 1.0.

Interest alone can liquidate, eventually

Even with rock-stable prices, borrow interest compounds against you. A position parked just above its limit and forgotten will drift below 1.0 given enough time. Check in on open loans.

Common questions

What health factor is safe?

There is no official threshold, but the further above 1.0 the better. On volatile collateral such as XLM, using under half your limit means roughly a 50% price crash is needed before liquidation, which is a common conservative target.

What actually happens in a liquidation?

Anyone may repay a portion of your debt and receive a matching slice of your collateral plus a small bonus, the liquidation incentive. It trims the position back to solvency rather than seizing everything, and it exists so the pool's depositors are never left holding an underwater loan.

Can I be liquidated even if prices never move?

Eventually, yes. Borrow interest compounds against you, so a position parked just above its limit and forgotten will drift below 1.0 given enough time.

Am I at risk of liquidation if I only deposit?

No. Liquidation applies only to borrowing positions. A depositor who never borrows has no health factor to defend.

Last reviewed on 1 September 2026.