Copy of Notional V2
  • About Notional
  • Product Guides
    • Fixed Rate Lending
    • Providing Liquidity
    • Leveraged Vaults
    • Fixed Rate Borrowing
  • FAQs
  • Risk Framework
  • Developer Docs
  • šŸ’øfCash
    • What is fCash
    • Using fCash
    • fCash Maturity
  • šŸ’¹Trading fCash
    • Transaction Fees
    • Exiting Early
    • Interest Rate Risk
  • šŸ’°Borrower Resources
    • Loan to Value (LTV)
      • Local-Currency Risk Factors
      • Single-Currency Portfolios
    • Health Factor
    • Liquidation
  • 🚰Liquidity Pools
    • What are Liquidity Pools
    • Liquidity Pool Mechanics
    • Liquidity Pool Examples
      • Providing Liquidity
      • Lending
      • Borrowing
  • šŸŖ™nTokens
    • What are nTokens
    • nToken Mechanics
      • nToken Portfolio
      • Minting nTokens
      • Redeeming nTokens
    • nToken Returns
    • nToken Risks
  • ⚔Leveraged Vaults
    • What are Leveraged Vaults
    • Entering and Exiting a Vault
    • Liquidation
    • Settlement
    • Vault Returns
    • Vault Risks
    • Vault FAQs
  • āš–ļøGovernance
    • NOTE
    • NOTE Staking
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  1. Borrower Resources

Health Factor

Some users have complicated portfolios that contain multiple collateral assets in different currencies, and potentially multiple debts in other currencies.

This makes calculating a max LTV complicated and hard for users to interpret. For this reason, we use a more general metric called the health factor that is easy to interpret for all portfolios.

The health factor gives an approximate sense of how close an account is to liquidation. Every account's health factor is between 1 and 10. The closer it is to 10, the healthier it is. The closer it is to 1, the closer it is to liquidation.

The health factor is defined as an account's collateral value after all risk adjustments divided by its net asset value before any risk adjustments scaled to sit between 1 and 10. An account's collateral value after all risk adjustments is called its free collateral.

HealthFactor=1+(freeCollateral/netAssetValue)āˆ—9Health Factor = 1 + (freeCollateral / netAssetValue) * 9HealthFactor=1+(freeCollateral/netAssetValue)āˆ—9

Example calculations

Here are some example health factor calculations for different multi-currency portfolios.

Example 1: nETH + Prime wBTC collateral vs. Prime USDC debt

// Account portfolio details

ETH collateral: 2,000 USDC worth of nETH
wBTC collateral: 1,000 USDC worth prime wBTC
Debt: 1,000 USDC of Prime USDC
ETH collateral factor: 0.8
wBTC collateral factor: 0.8
USDC borrow factor: 1.1
nETH collateral haircut: 0.15
Prime wBTC collateral haircut: 0
Prime USDC borrow buffer: 0

// Calculating risk-adjusted values

Risk-adjusted USDC loan value = 1,000 * 1.1 = 1,100
Risk-adjusted ETH collateral value = 2,000 * (1 - 0.15) * 0.8 = 1,360
Risk-adjusted wBTC collateral value = 1,000 * 0.8 = 800

// Calculating health factor

Free collateral = 1,360 + 800 - 1,100 = 1,060
Net asset value = 2,000 + 1,000 - 1000 = 2,000
Health factor = 1,060 / 2,000 = 1 + (0.53 * 9) = 5.77

Example 2: nETH collateral vs. Prime USDC + Prime DAI debt

// Account portfolio details

Collateral: 2,500 USDC worth of nETH
USDC debt: 1,000 USDC of Prime USDC
DAI debt: 500 USDC worth of Prime DAI 
Collateral factor: 0.8
USDC borrow factor: 1.1
DAI borrow factor: 1.1
nETH collateral haircut: 0.15
Prime USDC borrow buffer: 0
Prime DAI borrow buffer:

// Calculating risk-adjusted values

Risk-adjusted USDC loan value = 1,000 * 1.1 = 1,100
Risk-adjusted DAI loan value = 5000 * 1.1 = 550
Risk-adjusted Collateral value = 2,500 * (1 - 0.15) * 0.8 = 1,700

// Calculating health factor

Free collateral = 1,700 - 1,100 - 550 = 50
Net asset value = 2,500 - 1,000 - 500 = 1,000
Health factor = 50 / 1,000 = 1 + (0.05 * 9) = 1.45
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