When you want to open a borrow position, you will come across this dashboard which outlines a number of different borrowing factors.
For those unfamiliar with lending platforms, they can be a little confusing. This will walk you through what each of these factors mean.
The Health Factor is a clear visualization of how a borrow position stands. It ranges from green (100%) to red (0%). When your Health Factor reaches 0%, your borrow position will be signaled for liquidation.
At any given time, the health factor of a borrow position is assigned a percentage based on your borrow-to-collateral ratio and the Liquidation Threshold that is set for the asset you have borrowed.
The Health Factor is calculated by the following formula:
Reasons why your Health Factor may get closer to 0% include:
- 1.The value of your loan increases
- The price of borrowed asset increases
- You borrow more
- Your loan value increases as borrowing interest accrues over time
- 2.The value of your collateral decreases
- Price of collateral asset goes down
- You withdraw some of your collateral
The closer your Health Factor is to 0%, the closer you are to liquidation. Make sure you keep an eye on the Heath Factor of every borrow position you have.
We recommend that users maintain their Health Factor within the green and yellow area. When you borrow, avoid using your full borrowing power to reduce the risk of liquidation.
The Max LTV represents the maximum amount you can borrow against your collateral.
In the above scenario, the Max LTV of 90% means that for every 1 ETH of collateral you deposit, you can borrow up to 0.90 ETH of the other asset.
Max LTV differs depending on what collateral you are using. Every token asset will have its own LTV that can be increased and decreased by token holders through on-chain voting.
Typically, higher risk assets will have a lower LTV which gives them lower borrowing power. This is a signal of the underlying asset’s perceived safety.
The Liquidation Threshold refers to the maximum value your loan can reach before your collateral is signaled for liquidation.
In the above scenario, assuming you have 1 ETH of collateral deposited, your borrow position can increase to up to 0.95 ETH (1 ETH * 95%) before your borrow position is signaled for liquidation.
The Max Liquidation Fee is the maximum percentage of your collateral that can be lost if you are liquidated. This fee is paid to the liquidator as a reward, since prompt liquidations are essential to prevent Silos from accruing bad debt.
Silo employs full-collateral liquidation, which means that in the event of liquidation your entire collateral position is given to the liquidator and you keep your borrowed funds.