Liquidations
The health factor measures the safety of a borrow position in HypurrFi.
The health factor is calculated as:
The health factor measures a borrow position’s stability. A health factor below 1 risks liquidation. The liquidation threshold determines the maximum percentage of value that can be borrowed against the asset.
Let’s look at an example:
- A user supplies $10,000 in HYPE as collateral
- The liquidation threshold for HYPE is 60%
- The user borrows $4,000 in USDC
The health factor calculation would be:
This health factor of 1.5 means the position has a 50% safety margin before reaching the liquidation threshold. In other words, the collateral value could drop by 33.3% before the position becomes eligible for liquidation.
A health factor above 1 represents a position that is above the liquidation threshold. To improve the health factor, users can either supply more collateral or repay part of the borrow position. The health factor is directly tied to collateral value. If the value rises, the health factor improves; if it falls, the health factor declines, increasing the risk of liquidation.
When using E-mode, different liquidation thresholds apply due to the correlated nature of assets within the same E-mode category. For example, stablecoin E-mode allows for higher liquidation thresholds since assets like USDC and USDT are expected to maintain stable value relationships. This means users can borrow more against their collateral while maintaining a safe health factor, as the risk of value divergence between correlated assets is lower.
Collateral value is priced according to oracle data.
Liquidation Process
Liquidation happens when a borrower’s health factor drops below 1, meaning their collateral is insufficient to cover the borrowed amount. This can occur when the value of collateral decreases or the borrowing amount is increased.
When a liquidation occurs, the amount that can be liquidated depends on the health factor:
- For 0.95 ≤ Health Factor < 1: Up to 50% of the borrower’s debt can be repaid by the liquidator
- For Health Factor < 0.95: Up to 100% of the borrower’s debt can be repaid by the liquidator
- A liquidation penalty of 8% is applied to the liquidated portion
- The penalty acts as a supply buffer to cover the cost of repaying loans
Current Liquidation Thresholds
| Asset | Liquidation Threshold |
|---|---|
| HYPE | 60% |
| stHYPE | 60% |
| UBTC | 60% |
| UETH | 40% |
At launch, liquidations will be conducted by HypurrFi, with the possibility of transitioning to a permissionless model through governance voting. In a permissionless model, any market participant can act as a liquidator.