Loan health

The Loan health is a value you can use to get a sense of how "healthy" your loan is, where the higher the value is, the further away from entering the Collateral conversion mode you are. For example, a 200% loan health is better than a 50% loan health if you want to avoid conversion (which you almost always do).

In very simplified terms you think of it in your head as:

$$\textrm{loan health} = \frac {\textrm{collateral value* }}{\textrm{debt}} - 1 \ \\ \ \\ \ \\ \textrm{*}: \textrm{collateral value minus a buffer}$$

where the higher your collateral value is, and/or the lower your debt is, the higher the loan health is. There is also a small "buffer" value to ensure the protocol works correctly without ending up in a position where liquidation happens too late and the protocol ends up with bad debt. In the following examples you can ignore that to easier understand the relationship between collateral value and debt:

Example A:

If the value of your collateral is roughly twice the amount of the loan you have taken out (the debt), say $200 worth of collateral versus a $100 debt, if you divide those values you get 2. Then we subtract that with 1 which gets us the final value 1. 1 is equivalent to 100%, which would be your loan health value. You can think of it in this case as there being 100% "extra" of your loan as collateral.

Example B:

If the value of your collateral is roughly the same as the loan, say $100 worth of collateral versus a $100 loan, you would get 100 divided by 100 which gives you 1, and then we subtract that with 1 which gives you 0, so your loan health would be 0%. You can think of it as there being 0% room left before your loan has to close, which in this case would almost certainly mean your loan already has entered collateral conversion or been fully liquidated by this point.

The loan health changes over time depending on the price of the collateral, and depending on if you are adding more collateral to the loan, partially repaying, borrowing more, or simply by accruing more interest on the loan over time.

Details

The full formula for calculating loan health is:

$$\textrm{health} = \frac{s \times (1-\textrm{liqDiscount}) + p}{\textrm{debt}} - 1$$

Where:

• s: an estimation of the how much $MONEY you would get from converting all deposited collateral in their different bands

• liqDiscount: the liquidation discount set by the protocol

• p: the current oracle price minus the price set at the highest price band in the liquidation range, times the collateral. If the loan has entered collateral conversion, p is set to 0

• debt: your current loan debt including the accumulating interest

The protocol's loan health calculations follows the crvUSD implementation. A Health calculator can be found in its documentation that can be used to simulate loan health: https://resources.curve.fi/crvusd/loan-details/#loan-health