Health Factor

The health factor is a critical metric within the Godex Protocol that measures the safety of a borrow position. It is calculated as:

Health Factor = (Total Collateral Value * Weighted Average Liquidation Threshold) / Total Borrow Value

The health factor determines a borrow position’s stability. A health factor below 1 indicates a risk of liquidation. The liquidation threshold, set by Godex Governance for each asset, defines the maximum percentage of value that can be borrowed against that asset. For example, if a user supplies $10,000 in ETH with an 80% liquidation threshold and borrows $6,000 in G-tokens, the health factor would be 1.333.

A health factor above 1 means the position is above the liquidation threshold. Since the health factor fluctuates based on collateral and borrowed asset values, regular monitoring is essential. Users can increase their health factor by adding more collateral or repaying part of their borrow position. The health factor is directly tied to collateral value—if the value rises, the health factor improves; if it falls, the health factor declines, increasing liquidation risk.

However, there is no universal “safe” health factor. It depends on the volatility and correlation of the assets. Lower health factors may be acceptable for correlated assets, such as stablecoins or assets closely linked to ETH.

Liquidation occurs when a borrower’s health factor drops below 1, meaning their collateral is insufficient to cover the borrowed amount. This can happen due to collateral value decreasing or an increase in the borrowed amount. When liquidation occurs, up to 50% of the borrower’s debt is repaid by a liquidator, and a liquidation fee is applied to the borrower’s collateral.

Liquidations on Godex are permissionless, meaning any network participant can initiate the liquidation of an eligible borrow position. Liquidators operate in a highly competitive environment, closely monitoring borrow positions, reacting swiftly to market changes, and prioritizing liquidation transactions to be the first to execute.

Tools for Managing Health Factor

• Simulate health factor changes: DeFi Simulator

• Auto-repay borrow position: DeFi Saver