DeFi Guide

Health Factor:
The Number That Keeps You Safe

What it is, exactly how it's calculated on Aave V3, which thresholds to target, and the precise price that will trigger your liquidation.

June 2026 · 7 min read

What Health Factor Actually Measures

Health factor is a single number that tells you how far your position is from liquidation. It's not a percentage of your collateral used — it's the ratio of what the protocol allows you to owe versus what you actually owe.

Aave V3 Health Factor Formula
HF = (Σ collateral_i × price_i × LT_i) / total_debt_USD
LT = Liquidation Threshold (asset-specific, set by Aave governance). When HF < 1.0, you get liquidated.

Concrete example: you deposit 1 BTC worth $65,000 on Aave V3 Arbitrum. The liquidation threshold for WBTC is 78%. You borrow $40,000 USDC.

Your HF = (65,000 × 0.78) / 40,000 = 50,700 / 40,000 = 1.27. BTC would need to drop to about $51,000 before you get liquidated (your liquidation price).

The Three Zones

1.0 – 1.1
Danger Zone
Any 5–10% price drop triggers liquidation. Act immediately.
1.1 – 1.5
Caution Zone
Manageable, but watch daily. A 10–35% drop liquidates you.
> 1.5
Safe Zone
Comfortable buffer. Still monitor weekly — rates change your HF too.
The most common mistake: Opening a position at HF 1.2-1.3 and then ignoring it for weeks. Borrow interest accumulates daily — your debt grows while your collateral price stays flat or drops. An HF of 1.25 can become 1.10 in 2-3 months on a 6% APY borrow if BTC falls 10%.

How Borrow Interest Erodes Your Health Factor

This is the hidden mechanic most guides skip. Your health factor is not static. Even if BTC stays flat, your debt grows because borrow interest is compounded continuously on Aave. At 6% APY, a $40,000 debt becomes $42,400 in one year. If your collateral didn't move, your HF dropped from 1.27 to 1.20 — silently.

The formula for your liquidation price (the BTC price at which you get liquidated) is: liqPrice = debt / (collateral_amount × LT). With $42,400 debt and 1 BTC at 78% LT: liq price = 42,400 / (1 × 0.78) = $54,359 — that's $3,400 higher than when you opened the position.

The Recommended Minimum: HF 1.5 or Higher

For volatile assets like BTC or ETH, a health factor below 1.5 is uncomfortable. Here's why: BTC can drop 20% in a single weekend during market stress. At HF 1.5, a 20% BTC drop would bring you to approximately HF 1.20 — still safe but suddenly urgent. At HF 1.25, the same 20% drop puts you at roughly HF 1.00 — liquidated.

For stablecoin-backed positions or correlated assets (wstETH borrowing ETH), you can work with lower HF because the price ratio is stable. But for BTC, ETH, or any single-asset position against stablecoins, stay above 1.5.

Practical rule: Set an alert when HF drops below 1.6. Act (repay or add collateral) before it reaches 1.3. Never let it touch 1.1 — at that level, liquidation bots are already scanning your position.

Enter your position details to see your exact health factor, liquidation price, and how far BTC needs to drop to wipe you out.

🧮 Aave V3 Calculator → 📊 Live Position Dashboard →
See also: Aave V3 vs Morpho Blue — how the same position has a different health factor depending on which protocol you use, and when Morpho's higher LLTV actually makes your position safer at the same borrow amount.