To give an example, suppose a user has $1,000 worth of USDC, and wants to borrow UNI. How much can they borrow? If USDC has a collateral factor of 0.9, and UNI has a borrow factor of 0.7, then a user can borrow up to $1,000 0.9 0.7 = $630 worth of UNI. At this level of borrowing, the risk-adjusted value of their collateral is $1,000 * 0.9 = $900, and the risk-adjusted value of their liabilities is $630 / 0.7 = $900. If UNI increases in price, then the risk-adjusted value of their liabilities will also increase to >$900, and then they will be eligible for liquidation. The buffer allowing for liquidation is $1,000 - $630 = $370.