Health, Safety and Collateral Ratio

There are three risk metrics/parameters that users will see on DeFi Saver. These include:

Health Ratio

The Health Ratio is Aave's indicator of the position's overall health. Once it reaches 1, the position is liquidated.

It's calculated as:

Health Ratio = (collateral value * liquidation factor) / debt value

So if we take the example from the screenshot below, we'd have:

Health Ratio = (19,337 * 0.83) / 9,998.70

Health Ratio = 1.60

Information about the collateral asset's liquidation factor (Liq. Fac.) can be found in the "Market" section of the Aave dashboard

Collateral Ratio

The Collateral Ratio represents the % difference between your collateral and your debt in dollar amounts. It's calculated as:

Collateral Ratio = (collateral dollar amount / debt amount) * 100

So if we take the example from the screenshot below, we'd have:

Collateral Ratio = ($84,690/ $42,992) * 100

Collateral Ratio = 196.98%

Safety Ratio

The Safety Ratio is a measure of how far you are from liquidation, expressed as a percentage. It is inversely proportional to your borrow power used, so the more you borrow, the lower your Safety Ratio. It's calculated as:

Safety Ratio = (( Collateral in dollar value * collateral factor) / debt amount in dollar value) * 100

So if we take the example from the screenshot below, we'd have:

Safety Ratio = (( $78,979 * 0.8) / 35,002) * 100

Safety Ratio = 181.63%

Information about the collateral asset's collateral factor/LTV (Col. Fac.) can be found in the "Market" section of the Aave dashboard Collateral Factor is the same metric as LTV.

Depending on the protocols you use, they may only use one risk parameter (e.g. Collateral Ratio for Maker, or a protocol-specific one like Health Ratio for Aave v3)

Using the calculations in this article will help you make projections for your position - such as how much a specific price change in your collateral's value would impact your health metrics.

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