> For the complete documentation index, see [llms.txt](https://lenfi.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://lenfi.gitbook.io/docs/lenfi-v1-protocol/lenfi-p2p-aada-v1/liquidation/risk-parameters.md).

# Risk parameters

Collateral assets have specific value regarding the feasibility of the loans borrowed and supplied in the Lenfi P2P (Aada V1) protocol. Therefore, understanding the risks of using different collateral types is crucial for the Lenfi community.

### **Health Factor**

The **Health Factor** is the numeric representation of the safety of your deposited assets against the borrowed assets and their underlying value. The higher the value, the safer your funds' state is against a liquidation scenario. If the **Health Factor** reaches the liquidation threshold, the dApp will allow the lender to trigger a liquidation procedure.

![](https://1021446076-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F-MbJ318ByJ_1XAqFUzX5%2Fuploads%2FgXKRgrOVp6gWkcVPt2YE%2Fimage.png?alt=media\&token=4956046f-f499-48d9-b68d-d19f0e256465)

The **Health factor** is the **Collateral**  (value in ADA) divided by the sum of the **Loan** (value in ADA) and **Interest** (value in ADA), all divided by the **Liquidation Threshold**. 

* The **Collateral value of ADA** is determined by estimating how much it would fetch if sold on a DEX.
* The **Loan value of ADA** is calculated by estimating how much collateral can be purchased with ADA on a DEX.
* The **Interest value of ADA** is determined by estimating how much of collateral can be bought with ADA on a DEX.

You can read more about the Lenfi Liquidation Oracle and how liquidation works in V1 [here](https://aada.gitbook.io/aada/aada-v1-protocol/aada-finance-v1-protocol/liquidation-oracle).

### **Liquidation Threshold**

The **Liquidation Threshold** is an indicator that determines whether a position is undercollateralized. If the **Health Factor** reaches 1 or below, the loan is considered undercollateralized, and the lender can trigger the **Liquidation Oracle**.

### **Assets used as collateral**

<table><thead><tr><th>Collateral asset</th><th width="204">Liquidation threshold</th><th>Recommended Health Factor</th></tr></thead><tbody><tr><td>ADA</td><td>1.3</td><td>1.5</td></tr><tr><td>LENFI</td><td>2</td><td>1.5</td></tr><tr><td>MIN</td><td>1.7</td><td>1.5</td></tr><tr><td>WMT</td><td>2</td><td>1.5</td></tr><tr><td>LQ</td><td>2</td><td>1.5</td></tr><tr><td>WRT</td><td>2</td><td>1.5</td></tr><tr><td>COPI</td><td>2</td><td>1.5</td></tr><tr><td>DJED</td><td>2</td><td>1.5</td></tr><tr><td>SHEN</td><td>2</td><td>1.5</td></tr><tr><td>SNEK</td><td>2</td><td>1.5</td></tr><tr><td>IUSD</td><td>1.7</td><td>1.5</td></tr><tr><td>IAG</td><td>2</td><td>1.5</td></tr><tr><td>HUNT</td><td>2</td><td>1.5</td></tr></tbody></table>