Kamino Lend Explained: Borrowing and Supplying on Solana

Supplying

You deposit an asset into a pool and receive a claim on that pool plus a share of the interest borrowers pay. The rate is set by utilisation — the fraction of supplied assets currently borrowed — and moves continuously as people borrow and repay.

Two consequences people underestimate. First, a supply rate is not a promise: it is a snapshot of current demand, and it can halve in a day if borrowers repay. Second, high utilisation means withdrawal risk. If 95% of a pool is borrowed, the remaining 5% is all that is available to withdraw, and you may have to wait for repayments or for higher rates to draw new supply in. That constraint appears exactly when everybody wants out at once.

Borrowing and collateral factors

Every collateral asset carries a collateral factor — the proportion of its value you may borrow against. A 70% factor means $1,000 of collateral supports at most $700 of debt. Volatile assets get lower factors because the buffer must absorb a larger move before the loan is underwater.

Your loan-to-value ratio is debt divided by current collateral value. The number that matters is not where it starts but how it moves:

The position opened at 65% dies on a move the 40% position absorbs comfortably. You did nothing differently in either case; the only variable was the headroom you started with.

How liquidation actually works

When LTV crosses the liquidation threshold, any liquidator may repay part of your debt and claim collateral plus a bonus. It is automatic, permissionless and instant. Nobody reviews the position, and touching the threshold briefly is enough.

Three details that surprise people:

• You pay the bonus. The liquidator's incentive comes out of your collateral. That is the penalty, on top of the loss.
• Oracle price, not market price. Collateral is valued by an oracle feed. A bad print or a stale update can liquidate a position that was healthy on every exchange.
• It happens when you can least act. Liquidations cluster in violent markets, which on Solana have historically coincided with congestion. Plan for not being able to add collateral at the moment you most want to.

Vault positions as collateral

Kamino's distinguishing feature is letting a liquidity vault position back a loan while it keeps earning fees. Capital-efficient, and it introduces a correlation most borrowers do not price.

With an ordinary asset as collateral, one thing moves: its price. With a vault position, a sharp move does several things at once — the position's value falls, impermanent loss is realised on rebalance, fee income may drop as the range is left behind, and your LTV rises. These are not independent risks that might offset; they are the same event arriving through four doors.

That does not make it a bad product. It makes it one that needs more headroom than the same LTV on a simple asset, because the collateral is itself a volatile strategy rather than a static holding.

Using it without getting hurt

1. Borrow well under the maximum. The headroom is the product. Half the allowed LTV is a reasonable starting discipline.
2. Know your liquidation price before you borrow — the collateral price at which you are closed out, as a number you have written down.
3. Keep SOL for fees. Being unable to sign a transaction that adds collateral is an avoidable liquidation.
4. Check utilisation before supplying if you may need to withdraw quickly.
5. Treat vault collateral as more volatile than it looks, for the correlation reason above.

If the appeal is yield rather than leverage, note that supplying carries no liquidation risk at all — and staking carries neither liquidation nor impermanent loss, at the cost of a lower and less flexible return.