How It Works
Multiply allows a user to open a leverage position where they can increase their exposure to a yield-bearing asset by borrowing the underlying asset. (eg. increase exposure to JitoSOL by borrowing SOL). This is enabled by two K-Lend mechanisms: eMode and flash loans.
Because Multiply opens a debt position, users can be liquidated. Higher leverage leaves less buffer to avoid liquidation. Liquidations can occur in case of 1) sustained borrow rates that are higher than the staking APYs or 2) LST smart contract exploits
What is eMode?
Multiply vaults also take advantage of Elevation Mode (eMode), a K-Lend mechanism that allows for higher loan-to-value ratios (i.e. higher leverage) between assets that are pegged in price.
For example, in a JitoSOL/SOL Multiply vault, JitoSOL is supplied, and SOL is borrowed. This position is then looped up to a target leverage amount. Typically, these assets have a 75% LTV, allowing for 4x leverage. However, with eMode, their LTV can be raised to 90%, allowing for up to 10x leverage.
How do I know I am earning yield?
As long as the yield on your yield-bearing asset is higher than the borrow APU, you will have a positive Net APY. While your Net APY is positive, your position's SOL balance should be increasing.
Where does the yield come from?
There are two sources of yield, depending on the vault you are using:
SOL staking yield, from tokens like mSOL, JitoSOL and bSOL
Market making yield, earned on kTokens via trading fees in Kamino liquidity vaults
Some vaults also combine these two sources (eg. kTokens like kJitoSOL-SOL), thus earning staking and market making yield.
How do flash loans work?
Flash loans are a DeFi innovation that enables you to take a loan without posting collateral, given that the loan is repaid within that same transaction.
In multiply, a user inputs their deposit amount and target leverage (Multiplier) amount. Using these values, the protocol can identify how much SOL needs to be borrowed in the flash loan. Then:
SOL is borrowed
SOL is swapped to target asset (eg. JitoSOL)
Target asset is supplied in K-Lend
SOL is borrowed against target asset
Borrowed SOL is used to repay the initial flash loan
Position is open at target leverage
What are the fees?
Every action in Multiply uses the K-Lend flash loans mechanism, which incurs no fee. Users also pay the borrow APY on the debt asset in their position - note that this is already factored into the Net APY. Multiply txns also entail swaps via Jupiter, which may incur some slippage costs.
What about liquidations?
A Multiply position can be liquidated if the borrow interest rate is higher than the LST yield for a sustained period of time, thus increasing your debt relative to the LST enough to reach the liquidation threshold. Liquidation can also occur if the LST platform's smart contract is exploited.
How does kToken Multiply work?
Taking a leverage position using a kToken in Multiply works very similar to a standard leverage position. The two key differences are:
Exposure to the price of two assets on the collateral side, instead of one
Exposure to market-making yield in addition to staking yield
Multiply Example
A user has 1000 SOL. They deposit their SOL into a JitoSOL/SOL Multiply vault. They set an 8x Multiplier.
Now, let's say:
JitoSOL/SOL price ratio = 1.2JitoSOL APY = 7%SOL borrow rate = 6%
Thus, user's position:
User made a 1000 SOL Deposit, with 8x leverage
Total SOL Exposure: 1000 * 8 =8000 SOL collateral
(Note: 8000 SOL = 6666 JitoSOL)
Total SOL Debt = Total Exposure - Initial Deposit Total SOL Debt = 8000 - 1000 =7000 SOL debtLTV: Debt / Collateral LTV: 7000 / 8000 =87.5% LTV
JitoSOL APY = 7% :: 8000 * 7% = 560 SOL - Earned from Staking APY
Borrow APY = 6% :: 7000 * 6% = 420 SOL - Paid in Borrow Rate
Net SOL Earned = 560 - 350 = 140 SOL
Net APY = Net SOL Earned / Initial Deposit = 140 / 1000 = 14%
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