What is Health Factor in DeFi Lending?

When you borrow against your crypto on protocols like AAVE, Morpho, or Euler, your position has a health factor. This metric determines how close you are to liquidation.

How Health Factor Works

Health factor is a number that represents the safety of your borrowing position. It compares the value of your collateral to the value of your debt, adjusted for the liquidation threshold of each asset.

• Above 1.0: Your position is safe from liquidation
• At 1.0: Your position can be liquidated
• Below 1.0: Liquidation is imminent or already happening

Why Health Factor Changes

Your health factor is not static. It changes based on:

• Price movements of your collateral assets
• Price movements of your borrowed assets
• Interest accruing on your debt
• Protocol parameter changes

A health factor that looks safe today can approach liquidation if market conditions change. This is why monitoring matters.

Health Factor on Different Protocols

AAVE, Morpho, and Euler each use health factor to determine position safety. The calculation is similar across protocols: your collateral value (adjusted by liquidation threshold) divided by your outstanding debt.

If you have positions on multiple protocols, each position has its own health factor. A safe position on AAVE does not protect you from liquidation on Euler.

When to Take Action

Most users set mental thresholds for when to add collateral or repay debt. Common approaches include:

• Adding collateral when health factor drops below 1.5
• Repaying debt when health factor approaches 1.2
• Closing the position entirely if volatility increases

The challenge is knowing when your health factor changes. Checking dashboards manually is time-consuming and easy to forget.

Monitoring Health Factor with Otomato

Otomato detects your lending positions on AAVE, Morpho, and Euler automatically. When your health factor approaches a risk threshold, you receive an alert with context about which position is affected and how close you are to liquidation.

No dashboard checking required. If your positions are safe, you hear nothing. If something changes, you find out immediately.