Health Factor & Liquidations

Health Factor in Haust Lend Protocol

The health factor is a key metric in the Haust Lend Protocol, designed to measure the safety of your borrow position. It is calculated using the following formula:

Health Factor = (Total Collateral Value * Weighted Average Liquidation Threshold) / Total Borrow Value

This metric reflects the stability of your borrow position, with a health factor below 1 signaling a high risk of liquidation. Each collateral asset has a liquidation threshold, determined by Haust Governance, which sets the maximum percentage of value that can be borrowed against it. For instance, if you supply $10,000 in ETH with an 80% liquidation threshold and borrow $6,000 in Haust USD (hUSD), your health factor would be 1.333.

Managing Health Factor

Maintaining a health factor above 1 is crucial to avoid liquidation. Regular monitoring is essential since the health factor can change based on fluctuations in collateral and borrowed asset values. To improve your health factor, you can:

• Supply more collateral.

• Repay part of your borrow position.

Your health factor will rise if your collateral value increases or fall if it decreases, increasing liquidation risk.

There’s no universally "safe" health factor—it depends on asset volatility and correlations. Lower health factors may be more acceptable for correlated assets, such as stablecoins or assets tied to ETH.

Tools to Manage Your Health Factor (DYOR):

• DeFi Simulators: Test changes to your health factor.

• Auto-management Services: Automate borrowing and repayment strategies (e.g., DeFi Saver).

Liquidation Process

Liquidations in Haust Lend Protocol occur when the health factor drops below 1, indicating insufficient collateral to cover the borrow position. This situation may arise from a decline in collateral value or an increase in borrowed asset value, pushing the position past the liquidation threshold.

During liquidation:

• Up to 50% of the borrower’s debt is repaid by a liquidator.

• The equivalent value, plus a liquidation fee, is taken from the borrower’s collateral.

Liquidations are permissionless, allowing any participant to initiate the process for eligible positions. The process is highly competitive, requiring precision and speed. Liquidators must monitor oracle price changes, collateral balances, and protocol parameters in real time.

Successful liquidators often rely on custom-coded bots or scripts to automate monitoring and execution. Developers aiming to build liquidation tools or better understand the process can explore resources in the Haust Developer Documentation.