DeFi Collateral Ratio & Health Factor Calculator

DeFi lending protocols like Aave and Compound let you borrow against supplied collateral, but a falling collateral price can trigger an automatic liquidation. This calculator computes the two key safety metrics — the collateral ratio and the health factor — plus how much more you can safely borrow and the exact collateral price that would push your position into liquidation.

How it works

The health factor follows the Aave definition, using the liquidation threshold rather than the maximum LTV:

health factor    = (collateral × liquidation threshold) / borrow
collateral ratio = collateral / borrow × 100%
borrow headroom  = collateral × liquidation threshold − borrow
liquidation price = current collateral price × (borrow / (collateral × threshold))

Liquidation becomes possible when the health factor reaches 1, which is the moment the collateral value times the liquidation threshold equals the borrowed amount. The liquidation price is the current collateral value scaled by the ratio that drives the health factor to exactly 1, holding the borrow fixed.

LTV vs. liquidation threshold — a critical distinction

These two percentages are often confused:

• Maximum LTV is the most you can borrow when opening a position. If an asset has a max LTV of 70%, you can borrow up to 70% of its value at the time you supply it.
• Liquidation threshold is higher — it marks the point at which your position becomes eligible for liquidation. If the threshold is 80%, your collateral must fall until the borrowed value equals 80% of the collateral value before liquidation can begin.

The gap between max LTV and liquidation threshold is your built-in safety buffer. On Aave, many blue-chip assets have a max LTV of 75-80% and a liquidation threshold of 82-85%. Borrowing at max LTV leaves you close to liquidation immediately after opening the position; borrowing at 50-60% LTV gives you a much larger buffer.

Worked example

Suppose you supply collateral worth $10,000 of ETH and borrow $4,000 of a stablecoin. The liquidation threshold for ETH on your chosen protocol is 80%.

Health factor = (10,000 × 0.80) / 4,000 = 8,000 / 4,000 = 2.0

Your health factor is 2.0 — safely above 1. The liquidation price is the collateral price that brings the health factor to 1:

Liquidation price = current price × (borrow / (collateral × threshold))
                  = current price × (4,000 / 8,000)
                  = current price × 0.50

So ETH would need to drop 50% from its current value before the position faces liquidation.

How interest erodes your health factor over time

One risk that surprises new DeFi users: accrued interest increases the borrowed value. Even if the collateral price holds steady, the health factor drifts downward as interest compounds on the debt. A health factor of 1.3 can reach 1.0 in weeks on a high-rate borrow if not monitored. Re-check your position regularly and repay partial debt or add collateral to maintain a comfortable buffer.

Health factor targets by collateral volatility

These are general guidelines, not protocol rules. Volatile assets can move 20–30% in a single day; a health factor below 1.5 on such collateral leaves little room for a sudden price wick triggering liquidation before you can respond.

This calculator is a planning and monitoring tool. It is not financial advice.