Health Factor

every borrower should have it understood.

The Health Factor(HF) in the Abax Lending Protocol is the metric of the user's position liquidation risk. The greater the Health Factor is the smaller the liquidation risk is. The value 1 is an edge constant, the positions with smaller Health Factor are suspect to liquidation.\

Collateral & Debt Powers

The calculation of the Health Factor takes into account all the user's collaterals and debts together with the asset-specific parameters. Each asset has attached two risk parameters, the Collateral Coefficient (CC) and Debt Coefficient (DC). These parameters are used to calculate Collateral Power (CP) and Debt Power (DP), which tells us the account's ability to cover debt and the requirement to cover the current account's debt.

Let A be the set of all assets available in the Abax Lending Protocol. Then:

$$CP = \sum_{a \in A} \text{collateralAmountOf}(a)\cdot \text{priceOf}(a)\cdot\text{CC}(a)$$

$$DP = \sum_{a \in A} \text{debtAmountOf}(a)\cdot \text{priceOf}(a)\cdot\text{DC}(a)$$

The Health Factor is the quotient of DD and CP:

$$HF = \frac{DP}{CP}$$

Intuitively we can understand all of it in the following way. The more volatile the asset is the less Collateral Power it should provide, thus the smaller the Collateral Factor of the asset should be. The more volatile the asset is the more Debt Power it should use, thus the higher the Debt Factor should be. Users should always generate more Collateral Power than Debt Power which results in the Health Factor being greater than 1.