A health factor is a number that shows how safe a loan is on a DeFi lending service such as Aave. It compares the value of your CollateralCollateralAn asset pledged as security for a loan. In DeFi, the collateral usually has to be worth more than the loan. with your debt. The higher the number, the more room you have. If it falls below 1, LiquidationLiquidationWhen a loan or leveraged position is closed automatically because the collateral or margin no longer covers the debt. can begin.
How is it calculated?
Aave calculates it like this:
Health factor = (the value of each collateral asset × its liquidation threshold, added together) ÷ total debt
The liquidation threshold is set for each crypto. It is the share of the collateral's value that the debt can reach before the position counts as unsafe. It is usually higher than the maximum loan-to-value ratioLoan-to-value ratio (LTV)The size of a loan as a share of the value of its collateral. The maximum LTV sets how much you can borrow against it., which leaves a buffer between what you can borrow and what triggers liquidation.
An example
This example comes from Aave's own guide. You put up ether worth US$10,000, the liquidation threshold is 80% and you borrow US$6,000 in a stablecoin:
10,000 × 0.80 ÷ 6,000 = 1.33
If the price of ether falls by 25%, the collateral is worth US$7,500:
7,500 × 0.80 ÷ 6,000 = 1.00
Any further fall takes the number below 1, and the position can then be partly closed. The number rises if you add collateral or repay part of the loan. It falls if the collateral loses value or interest is added to the debt.
What to keep in mind
Prices come from an OracleOracleA service that brings outside information, such as prices or weather data, into smart contracts on a blockchain., so the number changes all the time. No single value is safe for every asset, but the closer it is to 1, the smaller the price fall needed. In the example a fall of just over 25% is enough, and crypto prices have often fallen further than that within days.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.