DeFi Lending Health Factors and Liquidation Risk
Interpret lending health factors with collateral, debt and protocol rules, while keeping a current risk snapshot separate from a liquidation prediction.
Overview
When translating these concepts into an integration, keep the scope described by the wallet history api with the result. The examples in wallet transaction history and smart contract event logs show how the same distinction affects neighbouring data questions.
A health factor summarises a lending position under a protocol’s risk model. It depends on collateral values, debt values and asset-specific parameters. A number without its block and calculation context is difficult to review.
Read the protocol definition
Collateral thresholds and debt treatment differ across protocols and versions. Price changes, accrued debt and parameter updates can affect the result. A health factor is a state-dependent measure, not a guarantee about future solvency. Preserve the asset-level inputs so a reviewer can see which exposure dominates the aggregate.
Worked example: a shrinking buffer
A simplified position has threshold-adjusted collateral value of 150 and debt value of 100, producing a ratio of 1.5. If adjusted collateral falls to 105 while debt remains 100, the buffer narrows to 1.05. This example explains sensitivity; it is not a substitute for the particular protocol’s exact liquidation calculation.
Keep risk and execution separate
Record the block, price inputs, debt accrual and parameter version. Test unavailable prices and a position with no debt. A risk alert should not claim a liquidation occurred: realised liquidation needs execution evidence. Avoid rounding a near-threshold value in a way that hides whether the protocol considers the position eligible for liquidation.
A practical acceptance test
Construct a position whose adjusted collateral-to-debt ratio moves from 1.5 to 1.05. Verify that rounding in the UI does not overwrite the underlying value. Remove a required price and assert unknown risk rather than zero collateral or infinite safety. An eligibility alert must not create a liquidation event without accepted execution evidence.
Questions about the topic
Frequently asked questions
Does a healthy snapshot guarantee future safety?
No. Prices, debt and risk parameters can change.
Is a liquidation alert evidence of execution?
No. Eligibility and an executed liquidation are separate facts.
Standards & technical documentation