Position Risk & Liquidations
Kamino Lend uses an overcollateralized Borrow/Lend model. Any debt position on Kamino requires more collateral deposited than debt taken. The ratio between the collateral and debt is called the loan-to-value (LTV) ratio.
LTV ratio is an expression of the health of your position, and gives an indication of your liquidation risk. Read more here
If your debt position reaches the Liquidation LTV threshold, it becomes eligible for liquidation.
Partial Liquidations
Instead of liquidations closing a borrower’s position in its entirety, K-Lend enables soft liquidations that settle, for example, 20% of a user’s debt. In this scenario, users who are only slightly over the liquidation LTV are not severely punished - whereas users who far exceed the liquidation LTV can be liquidated to a greater degree.
Dynamic Liquidation Penalties
Liquidation penalties have been traditionally high in DeFi to make up for low speeds, high gas fees, and network/market volatility. If a liquidator catches a falling knife and cannot liquidate those assets quickly, then they lose money. As a result, liquidation penalties have typically been 5-10% or more.
On K-Lend, liquidation penalties start at 2% and are capped at 10%. If the most efficient liquidators execute liquidations as soon as possible, borrowers are subject only to a 2% penalty. The liquidation penalty increases as the loan LTV increases, until the loan is liquidated. This system is designed to reward the most efficient liquidators, while simultaneously softening the blow to borrowers.
Example: Instant Liquidation
User A’s loan reaches the liquidation LTV of 80%. The liquidator triggers the liquidation shortly after the loan is eligible. The liquidator repays 20% of the debt and receives 20.4% (0.2 * 0.02) of User A’s collateral. User A now has less collateral, less debt, and a lower LTV, and their loan position remains active.
Example: Eventual Liquidation
User B’s loan reaches the liquidation threshold of 80% LTV. The liquidator doesn't act instantly and the liquidation penalty rises to 10% as the loan reaches a 90% LTV. At that point the liquidator steps in and liquidates the position. He repays 20% of the debt and receives 22% (0.2 * 0.1) of User B’s collateral.
Liquidation Penalty Parameters
| Asset(s) | Market | Minimum Penalty | Maximum Penalty |
|---|---|---|---|
SOL | Main Market | 5% | 10% |
USDC | Main Market | 5% | 10% |
USDT | Main Market | 5% | 10% |
mSOL | Main Market | 5% | 15% |
JitoSOL | Main Market | 5% | 15% |
bSOL | Main Market | 5% | 15% |
wETH | Main Market | 5% | 20% |
tBTC | Main Market | 5% | 20% |
JTO | Main Market | 5% | 20% |
UXD | Main Market | 5% | 10% |
USDH | Main Market | 5% | 10% |
JLP | Main Market | 5% | 15% |
JUP | Main Market | 5% | 20% |
kJitoSOL-SOL | Main Market | 5% | 15% |
kbSOL-SOL | Main Market | 5% | 15% |
kmSOL-SOL | Main Market | 5% | 15% |
kUXD-USDC | Main Market | 5% | 10% |
USDC | JLP Market | 5% | 10% |
JLP | JLP Market | 5% | 15% |
USDC | Altcoins Market | 5% | 25% |
WIF | Altcoins Market | 5% | 25% |
BONK | Altcoins Market | 5% | 25% |
PYTH | Altcoins Market | 5% | 25% |
JUP | Altcoins Market | 5% | 25% |
JTO | Altcoins Market | 5% | 25% |
WEN | Altcoins Market | 5% | 25% |
USDH | Altcoins Market | 5% | 10% |
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