Account-Level Solvency Metrics

Account-level solvency metrics are quantitative indicators used to evaluate whether an individual account has sufficient collateral to cover its liabilities. These metrics include the health factor, which is the ratio of collateral value to borrowed value, adjusted for liquidation thresholds.

Protocols use these metrics to determine if an account is eligible for borrowing or if it is at risk of liquidation. For traders, monitoring these metrics is essential to maintain control over their positions and avoid losses.

These metrics are calculated in real-time, often using oracles to update the value of assets. If an account's health factor falls below one, the system considers it insolvent and begins the liquidation process.

Sophisticated traders use these metrics to optimize their margin usage and risk exposure. They are the most granular level of risk management in decentralized finance.