The Same Loan, Less Borrowing Power
For the worked example, assume one collateral asset worth $10,000 and debt worth $6,000, including any interest already accrued. Set maximum LTV at 75% and the liquidation threshold at 80%, with no E-Mode adjustments. These are illustrative balances and settings, not a market quotation.
The formulas and interaction rules below follow the market’s deployed Pool implementation, checked on Oct. 31, 2026. For this single-collateral example:
– **Current LTV = debt ÷ collateral value.** It measures actual leverage, not the configured maximum. – **Maximum borrowing power = collateral value × maximum LTV.** Additional borrowing headroom is that amount minus existing debt, floored at zero. – **Health factor = collateral value × liquidation threshold ÷ debt.** It uses the liquidation threshold, not maximum LTV.
Now change only maximum LTV to zero. Hold prices, balances and the liquidation threshold unchanged, with no time passing between snapshots.
The loan’s current LTV remains 60%. The zero borrowing-power figure does not erase the $6,000 debt or mean the collateral is worth nothing. It means this collateral no longer supports additional borrowing.
A health factor above 1 can therefore coexist with zero borrowing headroom. Conversely, positive calculated headroom is not guaranteed access to a loan: reserve caps, available liquidity and other borrowing restrictions also apply.
What Can Push the Health Factor Below 1?
Starting separately from the **after-zero-LTV snapshot**, consider two hypothetical changes. In each, debt remains $6,000 and maximum LTV stays zero:
– **Collateral-price fall:** The same collateral units fall in oracle value from $10,000 to $7,000, while the liquidation threshold stays 80%. Current LTV rises to approximately 85.71%; health factor becomes `$7,000 × 0.80 ÷ $6,000 = 0.93`. – **Liquidation-threshold cut:** Collateral stays worth $10,000, but its liquidation threshold falls from 80% to 55%. Current LTV remains 60%; health factor becomes `$10,000 × 0.55 ÷ $6,000 = 0.92`.
Both cross the health-factor liquidation boundary below 1. That makes them different from the zero-LTV-only change. Liquidation still requires a liquidator to act and the other contract checks to pass; it is not an automatic sale when a borrowing limit changes.
Nor does an unchanged health factor guarantee unrestricted collateral movements. With debt outstanding, collateral withdrawals, transfers and disabling collateral face health-factor checks. In mixed-collateral positions, the deployed code also restricts removing nonzero-LTV collateral while zero-LTV collateral remains. Zero LTV alone does not block ordinary debt repayment.
Finally, these snapshots hold debt constant only to isolate each change. Variable-rate debt continues accruing interest, as explained in The Defiant’s existing-USDT-loan guide. A growing debt balance can lower the health factor even when collateral prices and liquidation thresholds do not change.
