Borrow Incentives
To grow productive asset usage on Kamino, asset issuers often provide borrow incentives for borrows of a specific debt asset againts a specific collateral asset. Below, we'll cover:
How Borrow Rewards work
How APYs are calculated
We'll be using a cbBTC/USDC rewards example, where users are awarded incentives based on the amount of USDC they have borrowed against cbBTC in their borrow positions.
Borrow Incentives Explained
Collateral: cbBTC
Debt: USDC
In this scenario, borrow incentives are allocated according to the amount of USDC borrowed against cbBTC. Reward amounts will scale as the total amount of USDC debt taken against cbBTC collateral increases.
Rewards Criteria
A position must contain cbBTC collateral and USDC debt
In a position with multiple collateral/debt assets, only the weighted amount of USDC borrowed against cbBTC is considered
Rewards Calculation
There are two APY values to consider:
Max APY This is the value shown in the market list, and refers to the maximum possible APY a user can earn on their debt:
farm apy = total rewards per year / total USDC debt backed by cbBTC in market
This is displayed as a blue value below the Supply APY of the Collateral Asset, as well as under the Borrow APY of the Debt Asset, shown below:
User APY This is the actual rewards a user is earning on their debt based on their collateral/debt composition:
user apy = farm apy * ( user USDC debt backed by cbBTc / total user USDC debt )Whereuser USDC debt backed by cbBTCis calculated as:user USDC debt backed by cbBTC = user cbBTC collateral / user total collateral * total user USDC debt
This is displayed as a blue value below the Borrow APY of the Debt Asset in the Position Overview of your active loan, and will display the actual APYs you are earning based on your exact position shown below:
A user’s reward amount thus considers the weighted amount of USDC borrowed against cbBTC in their position, in relation to total USDC borrowed against cbBTC in the market.
We’ll cover a few examples below:
Borrow Incentives Examples
Example #1: Position with only cbBTC collateral and USDC Debt
cbBTC Collateral = $100
USDC Debt = $50
user apy = farm apy * ( user USDC debt backed by cbBTC / total user USDC debt )
user apy = 10% * ( 50 / 50)
user apy = 10%
In this scenario, the user earns the Maximum APY value on their debt. With 50 USDC Debt debt, the user would earn 5 USDC annually. At a 10% Borrow APY, for example, their USDC rewards would offset 100% of their annual borrow cost.
Example #2: Position with SOL and cbBTC collateral, and USDC Debt
SOL Collateral = $50
cbBTC Collateral = $100
USDC Debt = $50
In this scenario, we first calculate how much of the user’s USDC debt is backed by cbBTC:
user USDC debt backed by cbBTC = ( user cbBTC collateral / user total collateral ) * total user USDC debt
user USDC debt backed by cbBTC = (100 / 150) * 50
user USDC debt backed by cbBTC = 33.33
This means, out of the total 50 USDC debt, 33.33 USDC is backed by the cbBTC collateral. We can then calculate the user’s APY:
user apy = farm apy * ( user USDC debt backed by cbBTC / total user USDC debt )
user apy = 10% * ( 33.33 / 50 )
user apy = 6.6%
In this scenario, the user earns a 6.6% APY value on their debt. With 50 USDC debt, the user would earn 3.3 USDC annually. At a 10% Borrow APY, for example, their USDC rewards would offset 66% of their annual borrow cost.
Example #3: Position with cbBTC collateral, and USDC and USDT Debt
cbBTC Collateral = $100
USDC Debt = $50
USDT Debt = $20
In this scenario, the user is borrowing at a 70% LTV, but is earning rewards on only the USDC portion of their debt. In practice this comes down to the same calculation as Example #1, where the user earns:
user apy = farm apy * ( user USDC debt backed by cbBTC / total user USDC debt )
user apy = 10% * ( 50 / 50)
user apy = 10%
In this case, the user earns 10% APY, but only on the USDC portion of their debt, so 5 USDC annually. Were the user to switch their USDT debt to USDC, they would be earning 7 USDC annually.
This rewards initiative thus encourages users not only to deploy cbBTC into Kamino, but to borrow USDC against it, thus leading to a net increase in borrow activity on the protocol, and potentially attracting additional USDC deposits.
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