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Overview

Kamino Lending uses a sophisticated system of collateral ratios and liquidity metrics to manage risk while maximizing capital efficiency. This page explains how these mechanisms work together to maintain protocol solvency.

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Collateral Ratios

Each reserve has multiple ratio parameters that govern borrowing and liquidations:

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Maximum Loan-to-Value (LTV)

The max LTV determines how much users can borrow against their collateral (from state/reserve.rs:1341): 
pub struct ReserveConfig {
    pub loan_to_value_pct: u8,  // e.g., 75 = 75% LTV
    // ...
}
Example: 
Collateral: 100 SOL @ $150/SOL = $15,000
Max LTV: 75%
Max borrow: $15,000 × 0.75 = $11,250
Typical Values:
  • Stablecoins (USDC, USDT): 85-90%
  • Major assets (SOL, ETH): 70-75%
  • Volatile assets: 50-60%
  • Exotic/risky assets: 25-40%

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Liquidation Threshold

The liquidation threshold is higher than max LTV, providing a safety buffer (from state/reserve.rs:1343): 
pub liquidation_threshold_pct: u8,  // e.g., 80 = 80% threshold
Relationship: 
0% ≤ max_ltv < liquidation_threshold ≤ 100%

Typical spread: 5-10%
Example: 
Max LTV: 75%
Liquidation threshold: 80%
Buffer: 5%

Users can borrow up to 75% LTV
Position becomes liquidatable at 80% LTV
Safety margin: 6.7% price drop before liquidation

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Calculating Position LTV

For multi-collateral positions, LTV is calculated as a weighted average: Allowed Borrow Value (from obligation refresh logic): 
let allowed_borrow_value: u128 = deposits
    .iter()
    .map(|d| d.market_value_sf * reserve_ltv_pct / 100)
    .sum();
Unhealthy Borrow Value: 
let unhealthy_borrow_value: u128 = deposits
    .iter()
    .map(|d| d.market_value_sf * reserve_liq_threshold_pct / 100)
    .sum();
Current LTV: 
pub fn loan_to_value(&self) -> Fraction {
    Fraction::from_bits(self.borrow_factor_adjusted_debt_value_sf)
        / Fraction::from_bits(self.deposited_value_sf)
}

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Multi-Asset Example

Deposits:
  SOL:  $10,000 (max LTV 75%, liq threshold 80%)
  USDC: $5,000  (max LTV 90%, liq threshold 95%)
  Total: $15,000

Allowed borrow:
  = ($10,000 × 0.75) + ($5,000 × 0.90)
  = $7,500 + $4,500
  = $12,000

Liquidation threshold:
  = ($10,000 × 0.80) + ($5,000 × 0.95)
  = $8,000 + $4,750
  = $12,750

If user borrows $11,000:
  Current LTV = $11,000 / $15,000 = 73.3%
  Distance to liquidation = $12,750 - $11,000 = $1,750 (13.7% buffer)

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Borrow Factor

Borrow factors adjust debt value for risk management (from state/reserve.rs:1362): 
pub borrow_factor_pct: u64,  // e.g., 120 = 120% borrow factor

pub fn get_borrow_factor(&self) -> Fraction {
    max(
        Fraction::ONE,
        Fraction::from_percent(self.borrow_factor_pct),
    )
}

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How Borrow Factors Work

Borrow factors multiply the debt’s impact on LTV calculations: Without Borrow Factor (100%): 
Borrow $1,000 → counts as $1,000 debt
With Borrow Factor (120%): 
Borrow $1,000 → counts as $1,200 debt
In Obligation (from state/reserve.rs:169): 
pub fn borrow_factor_f(&self, is_in_elevation_group: bool) -> Fraction {
    if is_in_elevation_group {
        Fraction::ONE  // No borrow factor in elevation groups
    } else {
        self.config.get_borrow_factor()
    }
}

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Purpose of Borrow Factors

  1. Volatility Protection: Higher factors for volatile assets
  2. Oracle Risk: Higher factors when price feeds are less reliable
  3. Liquidity Risk: Higher factors for assets with limited DEX liquidity
  4. Asymmetric Risk: Protects against rapid price drops
Example Impact: 
User borrows 10 ETH @ $2,000 = $20,000

With 100% borrow factor:
  Debt for LTV = $20,000
  
With 125% borrow factor:
  Debt for LTV = $20,000 × 1.25 = $25,000
  
If collateral is 50 SOL @ $150 = $22,500 (75% max LTV):
  Max borrow capacity = $22,500 × 0.75 = $16,875
  
  Without factor: Can borrow up to $16,875
  With factor: Can only borrow $16,875 / 1.25 = $13,500
  
Safety buffer = ($16,875 - $13,500) / $16,875 = 20%

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Setting Borrow Factors

Typical Values:
  • Stablecoins: 100% (no adjustment)
  • Major assets: 100-110%
  • Volatile assets: 115-130%
  • High-risk assets: 130-150%

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Utilization Rate

Utilization measures how much of the available liquidity is borrowed (from state/reserve.rs:977): 
pub fn utilization_rate(&self) -> Fraction {
    let total_supply = self.total_supply();
    if total_supply == Fraction::ZERO {
        return Fraction::ZERO;
    }
    Fraction::from_bits(self.borrowed_amount_sf) / total_supply
}
Formula: 
utilization = borrowed_amount / total_supply

where:
  total_supply = available_liquidity + borrowed_amount - fees
Example: 
Reserve state:
  Available in vault: 400,000 USDC
  Borrowed: 600,000 USDC
  Total supply: 1,000,000 USDC
  
Utilization = 600,000 / 1,000,000 = 60%

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Interest Rate Model

Interest rates dynamically adjust based on utilization via a piecewise linear curve.

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Borrow Rate Curve

From utils/borrow_rate_curve.rs:21: 
pub struct BorrowRateCurve {
    pub points: [CurvePoint; 11],  // Up to 11 points defining the curve
}

pub struct CurvePoint {
    pub utilization_rate_bps: u32,  // 0-10000 (0%-100%)
    pub borrow_rate_bps: u32,       // Annual rate in basis points
}

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Rate Calculation

From utils/borrow_rate_curve.rs:279: 
pub fn get_borrow_rate(&self, utilization_rate: Fraction) -> Result<Fraction> {
    // Find segment containing current utilization
    let (start_pt, end_pt) = self.points
        .windows(2)
        .find(|seg| {
            let [first, second] = seg;
            utilization_rate_bps >= first.utilization_rate_bps
                && utilization_rate_bps <= second.utilization_rate_bps
        })
        .unwrap();
    
    // Linear interpolation between points
    let segment = CurveSegment::from_points(*start_pt, *end_pt)?;
    segment.get_borrow_rate(utilization_rate)
}

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Example Curve

Utilization | Borrow APY | Supply APY (80% to lenders)
    0%      |     1%     |     0.8%
   20%      |     2%     |     1.6%
   40%      |     4%     |     3.2%
   60%      |     8%     |     4.8%
   80%      |    15%     |     9.6%
   90%      |    30%     |    21.6%
  100%      |   100%     |    80.0%
Key Features:
  • Low rates at low utilization → encourage borrowing
  • Moderate rates at mid utilization → balanced market
  • High rates at high utilization → encourage repayment and deposits
  • Very high rates near 100% → prevent liquidity exhaustion

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Supply APY Calculation

Lenders earn interest on the borrowed portion: 
supply_apy = borrow_apy × utilization × (1 - protocol_take_rate)
Example (60% utilization, 8% borrow APY, 20% protocol fee): 
supply_apy = 8% × 0.60 × (1 - 0.20)
           = 8% × 0.60 × 0.80
           = 3.84%

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Interest Compounding

Interest compounds every slot (from state/reserve.rs:1810): 
pub fn approximate_compounded_interest(
    rate: Fraction, 
    elapsed_slots: u64
) -> Fraction {
    let base = rate / u128::from(SLOTS_PER_YEAR);
    
    // Approximation: (1 + rate/slots_per_year)^elapsed_slots
    // Using Taylor series for efficiency
    match elapsed_slots {
        0 => return Fraction::ONE,
        1 => return Fraction::ONE + base,
        2 => return (Fraction::ONE + base) * (Fraction::ONE + base),
        // ... optimized calculation
    }
}
Compounding Frequency: 
Slots per second: ~2.5
Slots per year: ~78,840,000

With 10% APY:
  Rate per slot = 10% / 78,840,000 = 0.000000127%
  Effective APY = (1 + 0.000000127%)^78,840,000 - 1 ≈ 10.52%
The high frequency compounding slightly increases effective rates.

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Liquidation Mechanics

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Liquidation Bonus

Liquidators receive bonus collateral as incentive (from state/reserve.rs:1345): 
pub min_liquidation_bonus_bps: u16,     // e.g., 300 = 3%
pub max_liquidation_bonus_bps: u16,     // e.g., 1000 = 10%
pub bad_debt_liquidation_bonus_bps: u16, // e.g., 1500 = 15%
Dynamic Bonus: Increases as position becomes more unhealthy 
Current LTV = 82%
Liquidation threshold = 80%

Bonus calculation (simplified):
  health_factor = liquidation_threshold / current_ltv
                = 80% / 82% = 0.976
  
  bonus_bps = min_bonus + (max_bonus - min_bonus) × (1 - health_factor)
            = 300 + (1000 - 300) × (1 - 0.976)
            = 300 + 700 × 0.024
            = 317 bps = 3.17%

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Close Factor

Limits how much debt can be repaid in a single liquidation (from state/lending_market.rs:67): 
pub liquidation_max_debt_close_factor_pct: u8,  // Default 50%
Purpose:
  • Prevents excessive liquidation of slightly underwater positions
  • Allows multiple liquidators to participate
  • Reduces liquidation slippage impact
Example: 
Position:
  Collateral: $12,000
  Debt: $10,000
  Close factor: 50%
  Bonus: 5%

Liquidation:
  Max debt repayment: $10,000 × 50% = $5,000
  Collateral seized: $5,000 × 1.05 = $5,250
  
After liquidation:
  Collateral: $12,000 - $5,250 = $6,750
  Debt: $10,000 - $5,000 = $5,000
  New LTV: $5,000 / $6,750 = 74.1% (healthy again)

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Bad Debt Handling

When a position’s debt exceeds collateral value:
  1. Maximum Bonus Applied: bad_debt_liquidation_bonus_bps
  2. Socialized Loss: If collateral insufficient, loss may be socialized
  3. Protocol Insurance: Some protocols maintain insurance funds
From lib.rs:95: 
pub fn socialize_loss_v2(
    ctx: Context<SocializeLossV2>, 
    liquidity_amount: u64
) -> Result<()> {
    // Distributes bad debt across all lenders
    // Reduces cToken exchange rate proportionally
}

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Deposit and Borrow Limits

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Deposit Limits

From state/reserve.rs:1365: 
pub deposit_limit: u64,  // Maximum total deposits (in native tokens)
Purpose:
  • Risk concentration limits
  • Oracle reliability considerations
  • Liquidation capacity constraints
Example: 
USDC Reserve:
  Deposit limit: 10,000,000 USDC
  Current deposits: 8,500,000 USDC
  Available capacity: 1,500,000 USDC

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Borrow Limits

Multiple layers of borrow limits:
  1. Reserve-level (from state/reserve.rs:1367):
pub borrow_limit: u64,  // Total borrow cap
  1. Outside elevation group (from state/reserve.rs:1400):
pub borrow_limit_outside_elevation_group: u64,
  1. Per-elevation-group (from state/reserve.rs:1406):
pub borrow_limit_against_this_collateral_in_elevation_group: [u64; 32],
  1. Market-level (from state/lending_market.rs:84):
pub global_allowed_borrow_value: u64,  // Total protocol borrow cap (USD)

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Limit Tracking

When limits are crossed, timestamps are recorded (from state/reserve.rs:477): 
pub fn update_deposit_limit_crossed_timestamp(&mut self, timestamp: u64) {
    if self.deposit_limit_crossed() {
        if self.liquidity.deposit_limit_crossed_timestamp == 0 {
            self.liquidity.deposit_limit_crossed_timestamp = timestamp;
        }
    } else {
        self.liquidity.deposit_limit_crossed_timestamp = 0;
    }
}

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Utilization-Based Restrictions

Borrowing can be disabled above certain utilization (from state/reserve.rs:1380): 
pub utilization_limit_block_borrowing_above_pct: u8,  // e.g., 95
Purpose: Ensure liquidity remains available for withdrawals Example: 
Reserve configuration:
  Utilization limit: 95%
  Current utilization: 94%
  
Available to borrow:
  Total supply: 1,000,000 USDC
  Currently borrowed: 940,000 USDC
  Max borrowable: (1,000,000 × 0.95) - 940,000 = 10,000 USDC
  
If utilization hits 95%:
  New borrows blocked
  Repayments and deposits still allowed
  Utilization must fall below 95% before borrowing resumes

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Risk Parameter Guidelines

Factors to Consider:
  • Asset volatility (lower LTV for volatile assets)
  • Oracle reliability (lower LTV for less reliable oracles)
  • DEX liquidity (lower LTV for illiquid assets)
  • Correlation (higher LTV for correlated pairs in elevation groups)
Conservative Approach:
liquidation_threshold = max_ltv × 1.07 to 1.10

Example:
  max_ltv = 75%
  liquidation_threshold = 75% × 1.07 = 80.25%
Risk-Based Tiers:
Tier 1 (Stablecoins):        100%
Tier 2 (Major assets):       105-110%
Tier 3 (Mid-cap tokens):     115-125%
Tier 4 (High-risk):          130-150%
Special Considerations:
  • Elevation groups: Often 100% (isolated risk)
  • Wrapped assets: Match or exceed underlying
  • Governance tokens: Higher factors due to governance risk
Design Principles:
  1. Low rates (0-40% utilization) → encourage borrowing
  2. Moderate increase (40-80%) → balanced market
  3. Steep increase (80-95%) → protect liquidity
  4. Very steep (95-100%) → emergency rates
Example Conservative Curve:
0%:   2% APY
50%:  5% APY
80%:  15% APY
90%:  35% APY
100%: 150% APY
Bonus Range:
min_liquidation_bonus: 3-5%
max_liquidation_bonus: 8-12%
bad_debt_bonus: 15-20%
Close Factor:
  • 25-50% for most reserves
  • Higher (50-75%) for stablecoins
  • Lower (20-25%) for volatile assets

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Formula Reference

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LTV Calculations

// Single collateral
max_borrow = collateral_value × max_ltv

// Multi-collateral
max_borrow = Σ(collateral_i_value × reserve_i_max_ltv)

// Current LTV
current_ltv = borrow_factor_adjusted_debt / total_collateral_value

// Health factor
health_factor = liquidation_threshold_value / borrow_factor_adjusted_debt

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Interest Calculations

// Borrow APY (from curve interpolation)
borrow_apy = interpolate(utilization, curve_points)

// Supply APY  
supply_apy = borrow_apy × utilization × (1 - protocol_take_rate)

// Compounding
effective_apy = (1 + apy/slots_per_year)^slots_per_year - 1

// Debt growth
new_debt = old_debt × (new_cumulative_rate / old_cumulative_rate)

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Liquidation Calculations

// Liquidation eligibility
is_liquidatable = borrow_factor_adjusted_debt > unhealthy_borrow_value

// Bonus calculation (simplified)
bonus = min_bonus + (max_bonus - min_bonus) × unhealthiness_factor

// Collateral seized
seized_collateral = repaid_debt × (1 + bonus) / collateral_price

// Maximum repay
max_repay = min(
    total_debt × close_factor,
    available_collateral_value / (1 + bonus)
)

Reserves

Learn about reserve configuration and interest rate models

Obligations

Understand user positions and health calculations

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