> For the complete documentation index, see [llms.txt](https://udonfi-1.gitbook.io/udonfi-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://udonfi-1.gitbook.io/udonfi-docs/core-concepts/liquidation-and-health-factor.md).

# Liquidation & Health Factor

## The Health Factor – Your Position's Safety Gauge

To precisely measure the safety and stability of a borrowed position, Udon utilizes a vital metric known as the **Health Factor**. Consider it the personal "pressure gauge" for your loan.

The formula is:

{% code title="Health Factor" %}

```
Health Factor = Total Borrow Value
                ----------------------
                Total Collateral Value × Weighted Average Liquidation Threshold
```

{% endcode %}

What it signifies:

* A Health Factor **above 1** signals that your position is **stable and secure**. The higher the number, the safer your loan.
* A Health Factor **below 1** signifies **danger!** Your position is at imminent risk of liquidation.

What influences your Health Factor:

* **Collateral Value:** If the market value of your collateral (e.g., ETH) increases, your Health Factor **improves** (indicating greater safety). Conversely, if its price declines, your Health Factor **decreases** (signaling increased risk).
* **Borrowed Asset Value / Amount:** If the value of the asset you've borrowed increases, or if you increase your borrowed amount, your Health Factor will **decline**.

How you can improve your Health Factor:

* **Supply additional collateral:** Adding more crypto assets directly strengthens your safety buffer.
* **Repay part of your loan:** Reducing your outstanding debt directly improves your position's health.

Is there a "perfect" Health Factor?

* While a Health Factor above 1 is the baseline for safety, there isn't a universally "ideal" number for all scenarios. The optimal Health Factor depends on the volatility and correlation of your specific assets. For example, a slightly lower Health Factor might be acceptable for stablecoins or tightly correlated assets due to their typically lower price fluctuations.

***

## Liquidation – When the Safety Gauge Dips Below 1

**Liquidation occurs when your Health Factor drops below 1.** At this point, the market value of your collateral is no longer deemed sufficient to securely back your loan. To protect the protocol and its liquidity providers, the system automatically triggers a liquidation process.

* Who performs it?
  * Any participant in the network can act as a **liquidator**. These are often automated bots or individuals who monitor borrow positions with a Health Factor below 1, seeking liquidation opportunities.
* What happens during liquidation?
  * **Partial Loan Repayment:** A portion of the borrower's outstanding debt is repaid by the liquidator.
  * **Collateral Sale:** In exchange, a corresponding portion of the borrower's collateral is sold to the liquidator, usually with a **liquidation fee** added as an incentive.
  * Typically, up to **50% of the borrower's debt** can be liquidated in a single transaction to minimize market impact and allow the borrower an opportunity to react.
* A Competitive Process:
  * Liquidations are inherently competitive. Successful liquidators require technical expertise and rapid response times to execute transactions quickly and claim the liquidation reward.

***

## Tools to Help Manage Your Health Factor

* **Udon DApp Dashboard:** Your primary interface will prominently display your **Health Factor** and other crucial metrics in real-time. Regular monitoring is essential.

Understanding your **Health Factor** and the **liquidation process** is fundamental for a secure and effective DeFi experience on Udon Finance. Always keep a vigilant eye on your position!