Complete Guide to Lending & Borrowing in Crypto: How It Works, Health Factor, Liquidations and Safe DeFi Strategies
DeFi is full of opportunities, but it also comes with concepts that can be confusing at first. One of the most fundamental is Lending and Borrowing.
In this guide, you will learn:
- What lending and borrowing actually mean
- How the Health Factor (HF) works
- What happens during a liquidation
- Real examples using Navi on SUI
- Strategies to use it safely
Let’s break it down.
1. What is Lending and Borrowing?
DeFi lets you lend or borrow crypto using smart contracts.
✅ Lending
You deposit crypto (e.g. USDC) into a protocol.
Others borrow it.
You earn interest.
It works like a high-yield savings account.
⚠️ Borrowing
You borrow crypto (e.g. SUI) by leaving another asset as collateral (e.g. USDC).
You pay interest but keep your original position.
This gives you liquidity without selling your holdings.
2. Health Factor (HF): the most important metric
The Health Factor (HF) measures how safe your loan is.
Formula (simplified):
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