Health Factor
Your health factor is a single number that tells you how close you are to liquidation. It's the core metric to watch if you borrow. Understand it, and you understand the risk.
The Definition
Health Factor = (Total Collateral Value times Liquidation Threshold) divided by Total Debt.
Your collateral value is the USD value of your deposited tokenized stocks from the on-chain oracle. Your liquidation threshold is the asset-specific percentage: 65% for tAAPL, 55% for tTSLA, 75% for tSPY. Your total debt is the USDC you've borrowed plus all accrued interest.
What the Numbers Mean
Think of your health factor as a safety cushion:
| Health Factor | Status | What It Means |
|---|---|---|
| 1.5 and above | Safe | Comfortable cushion. You can borrow more. |
| 1.2 to 1.5 | Healthy | Solid buffer. Using leverage safely. |
| 1.1 to 1.2 | Watch | Buffer is thinning — a moderate overnight gap could threaten you. |
| 1.0 to 1.1 | At risk | Close to liquidation. This is the band where the Watcher steps in to auto-repay. |
| Below 1.0 | Liquidating | Liquidation can occur now. |
An Example
Say you deposit 10,000 USD of tAAPL (threshold 65%) and borrow 5,000 USDC. Your HF = (10,000 times 0.65) divided by 5,000 = 6,500 divided by 5,000 = 1.3. You're safe. If tAAPL drops 20% overnight to 8,000 USD, your HF = (8,000 times 0.65) divided by 5,000 = 5,200 divided by 5,000 = 1.04. You're at the edge. A further 2-3% drop liquidates you.
The Liquidation Line
A health factor of exactly 1.0 is the liquidation line. At HF = 1.0, your collateral value at threshold equals your debt. You are unsafe.
When liquidated: A liquidator seizes up to 50% of your collateral (close factor) and sells it to repay your debt. The liquidator receives a bonus (5% base, ramping to 15% if very underwater). If your HF is below 0.95, your entire position is liquidatable.
How the Watcher Protects You
The Watcher checks your health factor every 10 seconds, 24/7. If it sees your HF approaching 1.0, especially during nights, weekends, or holidays when prices can gap, it takes action:
- Alerts: You get a plain-English message about your risk level.
- Auto-repay (if approved): If you've given the Watcher an allowance and have idle USDC, it automatically repays part of your debt.
- Backstop: If your HF drops to critical levels and the Watcher can't auto-repay enough, a permissionless liquidation occurs as a last resort.
How to Stay Safe
- Keep a safety margin. Aim for a health factor of 1.3 to 1.5. Don't borrow right up to capacity.
- Diversify collateral. Use multiple assets (tAAPL, tTSLA, tSPY) to stabilize. Single-asset concentration is risky.
- Monitor during off-hours. Set alerts if your HF approaches 1.2 at night or weekends. Proactively repay before market close.
- Use the Watcher's allowance. Pre-approve it to auto-repay with a cap (e.g., 5,000 USD per day). This dramatically improves resilience.
- Understand what you're borrowing for. If trading, liquidation risk is explicit. If borrowing for utility, it may not be worth the gap risk.
The Fine Print: Risk Factors
Your health factor can deteriorate from two sources: Collateral price drop (if your tokenized stock falls in USD value, your collateral shrinks and your HF drops); Debt growth (as you accrue interest, your total debt grows and your HF drifts downward). Both happen on testnet. On mainnet, the oracle will be a real dual-feed with deviation guards; today it's a testnet mock. Interest accrual is deterministic and visible on your dashboard.