Borrowing Power, Health Factor, and Liquidation

How your borrowing power is calculated, what your health factor means, and exactly what happens if you get liquidated

Borrow lets you keep your assets and take a loan against them instead of selling. The loan has to stay covered by the assets backing it. Three numbers decide whether it is: your borrowing power, your health factor, and the liquidation that happens if the health factor falls too far.

Two different limits: Product LTV and collateral factor

Each collateral asset carries two percentages, and confusing them is the most common way to misjudge how much room you have.

• Product LTV (loan-to-value) is the borrowing limit the app enforces. It decides the most you can borrow against that asset.

• Collateral factor (CF) is the liquidation threshold. It decides the point at which your position can be liquidated.

For any given asset, its Product LTV is set below its own collateral factor. So each asset you hold has a borrowing limit and, above it, a separate liquidation point. That gap is the safety margin: it means borrowing your maximum does not leave you one small price move away from liquidation.

Because we cap your borrowing at Product LTV while liquidation is measured against the higher collateral factor, a position borrowed to its stated maximum still starts with a health factor comfortably above 1.00, not sitting on the edge of it.

Where each number comes from

The collateral factor is set on the lending market itself, per asset, and is published in Lending Market Parameters. It is the number the protocol uses when it decides whether a position is liquidatable.

The Product LTV is set by ether.fi on top of that. It starts from the asset's collateral factor and discounts it, by more for assets whose price can move sharply and by less for assets pegged to a currency. A separate per-asset ceiling can lower it further. The result is never above the collateral factor, so the safety margin cannot be configured away.

Because the Product LTV is applied by ether.fi rather than by the lending market, the app is the place to read it. The app shows the Product LTV in force for each asset you hold, alongside your live borrowing power.

Borrowing power

Your borrowing power is the most you can borrow. It is the sum, across every asset you have posted as collateral, of:

that asset's dollar value, multiplied by its Product LTV

An asset with a low Product LTV contributes much less borrowing power than a dollar stable with a high one, even at the same dollar value.

The dollar value comes from the price feeds, which have their own protections against a bad or stale price. See Price Feeds.

Further limits can hold your available amount below this figure, so the app may show less headroom than Product LTV alone implies:

• A borrowing cap per account.

• A minimum health factor the app keeps you above after the borrow completes, which is stricter than the point at which liquidation becomes possible.

• The available market liquidity and the Lending Protocol's current reserve limits.

• Your existing debt and the prices used to value your collateral.

Whichever limit binds first determines the amount the app offers you. The same checks run again when the borrow executes, so the app's available to borrow amount is the source of truth for the transaction.

Health factor

Your health factor compares your collateral against what you currently owe, including accrued interest. It is measured with the collateral factor, not the Product LTV, because it answers a question about liquidation:

health factor = (collateral value x collateral factor) / total debt

With no debt it is effectively infinite. As you borrow it falls. As interest accrues it keeps falling, slowly, even if you do nothing and prices do not move.

At or above 1.00, your position is healthy. Below 1.00, it can be liquidated. Borrowing your full borrowing power does not take you to 1.00: it takes you to the ratio between the collateral factor and the Product LTV, which is the margin described above.

You can read your own live figure from the Spoke contract with getUserAccountData(yourSafeAddress), which returns your health factor alongside your total collateral value and total debt. The app shows the same number.

If your debt goes above your Product LTV limit

Prices move, and a Product LTV can be revised downward. Either can leave you owing more than your current Product LTV limit allows.

This blocks new borrowing until you are back under the limit. It is not a liquidation and it does not force you to do anything, because liquidation is still measured against the collateral factor, which sits above your Product LTV. Treat it as a warning that your margin has thinned rather than as an emergency.

What a liquidation actually does

Someone else, a liquidator, repays part of your debt and takes some of your collateral in exchange, at a discount. It is not a foreclosure, and it usually does not close your position.

It is partial, and it aims at a target

A liquidator cannot simply take everything. The protocol calculates how much debt needs repaying to lift your health factor back to a target health factor set a little above 1.00, and that is the size of the liquidation.

The normal outcome is that you keep most of your position and come out the other side with a health factor slightly above the danger line. You still owe money, and you still have collateral.

The discount scales with how unhealthy you are

The liquidator's incentive is a liquidation bonus: extra collateral on top of what their repayment is worth. Each asset has a published maximum liquidation bonus, but that maximum does not apply at every health factor. The bonus is interpolated:

• Just below 1.00, the liquidator receives the minimum bonus.

• At or below a lower health-factor point, they receive the maximum.

• Between those two, it scales smoothly.

Being slightly underwater therefore costs you considerably less than being badly underwater, which is the main reason to act early rather than wait.

The protocol also takes a cut of that bonus as a liquidation fee. That fee comes out of the liquidator's bonus, not out of an extra charge to you. The maximum bonus, the fee, and the health-factor points that govern the interpolation are all published in Lending Market Parameters.

Very small leftovers are closed out

If a partial liquidation would leave only a trivial amount of collateral or debt in a position, the protocol closes out that asset's position instead of leaving the remainder. Otherwise balances too small to be worth liquidating would sit there permanently as bad debt. The cutoff is a fixed constant in the protocol (DUST_LIQUIDATION_THRESHOLD), not a per-asset setting.

Situations and outcomes

Situation	What happens
You try to borrow more than your Product LTV allows	The borrow is rejected before it reaches the chain.
Your debt rises above your Product LTV limit after prices move	New borrowing is blocked until you are back under it. Nothing is liquidated, because liquidation is measured against the higher collateral factor.
You try to withdraw collateral your debt still needs	The withdrawal is limited to what keeps you inside your Product LTV, so it may be capped or rejected.
Interest accrues and pushes your health factor below 1.00	You become liquidatable. No warning transaction happens on-chain; the position simply becomes eligible.
Your collateral falls in price	Borrowing power falls and health factor falls. A large enough fall makes you liquidatable.
You are liquidated	Part of your debt is repaid by a liquidator, who takes collateral plus a bonus. You keep the rest, at a health factor above the target.
A price feed cannot produce a trustworthy price	Borrows and liquidations against that asset revert rather than acting on a bad number. See Price Feeds.

What you can do about it

Two actions raise your health factor, and both are available at any time:

1. Repay some debt. This lowers the denominator and is the most direct fix.

2. Add collateral. This raises both your borrowing power and your health factor.

Withdrawing collateral or borrowing more will lower it. A liquidation is open to anyone the moment your health factor is below 1.00, and the protocol does not grant a grace period before that happens.

Further reading

• Technical Documentation, how borrowing and lending works

• Lending Market Parameters, collateral factors and liquidation settings per asset

• Price Feeds, how your collateral gets valued