Health Factor (HF)

The Health Factor (HF) is the protocol’s built-in safeguard that continuously measures the solvency of every Operator within each vault. It ensures that Curator vault capital remains protected at all times by determining when an Operator may self-stabilize through a Position Rollover and when the protocol must restore the vault through a Bounded Liquidation.

$HealthFactor(HF)=Σ(V i ​ ×(1−h i ​ ))/L$

Where:

• Vᵢ = USD value of each risk-buffer component (unutilized vault asset, delegated YODL, taker tokens held)

• hᵢ = haircut applied to each component

• L = curator principal currently utilized for execution

Haircut Schedule

Asset Type	Typical Haircut	Rationale
Stablecoins (USDT / USDC)	0–1%	Low volatility / high liquidity
ETH / WBTC / blue-chip assets	5–10%	Moderate volatility
Delegated YODL	15–20%	Governance-controlled risk buffer

HF represents the relationship between the Operator’s total backing assets and the Curator capital they have deployed:

• HF > 1.0 — The vault is fully solvent; the Operator’s backing assets comfortably cover all liabilities.

• HF = 1.0 — The vault is at its minimum safety threshold; rollovers may be used by the Operator to rebalance exposure.

• HF < 1.0 — The vault has entered the restoration zone; a bounded liquidation restores vault principal in full.

Curators don’t need to monitor HF or take any action. The system tracks it on-chain in real time, ensuring that:

• Curator principal remains intact, even if an Operator’s position weakens.

• Restoration mechanisms are applied automatically within each affected vault.

• Transparency is maintained — HF values can be viewed anytime through the vault dashboard.