Liquidations are a key safeguard in a lending protocol. They protect depositor funds by reducing a borrower’s debt before the collateral is no longer enough to cover it.
- Protect depositors from bad debt
- Reduce unnecessary losses for borrowers
- Reward liquidators for acting when a position becomes risky
How Position Health Is Calculated
Every borrower in a Kamino market has a single on-chain account called an Obligation. It holds up to eight collateral deposits and five borrows, and health is calculated across all of them together.
Collateral Value
For each deposit, Kamino calculates its current market value and adds it to three running totals: deposited_value Total market value of the collateral.Debt Value
For each borrow, Kamino calculates the outstanding debt, including accrued interest, using the latest oracle price. It adds the result to two running totals: borrowed_assets_market_value The actual value of the outstanding debt.borrowFactorPct is always 100% or higher.
For example, at 150%, every $1 borrowed counts as $1.50 when measuring position health. The borrower still owes $1, but Kamino treats it as $1.50 of debt when assessing liquidation risk.
Liquidation Eligibility
Kamino compares two values to determine whether a position can be liquidated. Current LTV Measures the position’s risk-adjusted debt against its total collateral value.Actual LTV and the Bonus Cap
Actual LTV compares the amount owed with the position’s total collateral value, without applying borrow factors.Liquidation Rounds
Once a position crosses its health limit, Kamino does not liquidate the entire debt at once. TheliquidationMaxDebtCloseFactorPct parameter caps each liquidation round to a percentage of the position’s outstanding debt. If the position remains unhealthy, another liquidation round can follow.
This limits how much collateral can be seized in a single transaction, helping mildly unhealthy positions return to health without unnecessary collateral loss. The cap increases to 100% only when a position approaches insolvency.
liquidationMaxDebtCloseFactorPct
Sets the maximum share of outstanding debt that can be repaid in one liquidation round. The value varies by market.
insolvencyRiskUnhealthyLtvPct
When LTV exceeds 95%, the close factor jumps to 100%. The position is close enough to bad debt that full liquidation in a single transaction is necessary.
The close factor is configured per market and applied to each obligation. Query
GET /kamino-market/{marketPubkey}/users/{userPubkey}/obligations to see the effective closeFactor for an obligation.A Measured Path Back to Health
Consider a position with $10,000 in collateral and $8,100 in risk-adjusted debt. With an 80% health limit, liquidation begins at $8,000. The position is therefore only $100 beyond the threshold, yet a conventional 50% close factor would allow a liquidator to repay $4,050 and seize approximately $4,250 in collateral, including the liquidation bonus. A minor shortfall could result in the loss of a substantial share of the borrower’s position. Kamino’s close factor takes a more measured approach. The first liquidation round is limited to a fraction of the debt, with a proportionate amount of collateral seized. This is often enough to return a mildly unhealthy position to safety without removing significantly more collateral than the correction requires. For more severe positions, the close factor does not prevent liquidation; it divides the process into rounds. If the position remains unhealthy after the first repayment, another round can follow. Debt and collateral are reduced progressively until the position recovers or is fully resolved. This approach favors borrower protection over single-transaction efficiency. Some positions may require several liquidations, but the smaller rounds mean collateral loss is more proportionate and the market has more time to absorb the liquidated assets.Edge Cases: Large Liquidations and Dust Positions
A single transaction clearing too much value can distort the market or be influenced by transaction ordering. A position too small to liquidate profitably can sit in the protocol indefinitely.maxLiquidatableDebtMarketValueAtOnce
No single liquidation can exceed $500,000 in value, limiting market impact from large forced sales.
minFullLiquidationValueThreshold
Below $2 in debt, the close factor is bypassed and the full borrow must be cleared.
Liquidation Priority
lowest_reserve_deposit_liquidation_ltv and highest_borrow_factor_pct, allowing the rules to be enforced efficiently onchain. Minimum value checks keep these constraints from making small liquidations uneconomical.
Reserves with loanToValuePct set to zero cannot be seized. These reserves are deposit-only and are not intended to support borrowing.
Dynamic Liquidation Bonus
Liquidators repay debt using their own tokens and receive collateral worth more than the amount repaid. Unlike a static bonus that pays the same percentage regardless of severity, Kamino’s bonus scales with how far a position has breached its threshold. Positions closer to insolvency offer a larger reward, directing liquidator attention to the debt that poses the greatest risk to the protocol. Each reserve configures three bonus parameters:How the Bonus Is Calculated
The bonus is calculated in three operations.1
Floor: guarantee a minimum reward
The bonus starts as the greater of the configured floor or how far the position has crossed its LTV limit. This ensures even a barely-unhealthy position offers enough incentive for a liquidator to act.
2
Cap: limit the maximum reward
The bonus is capped by the reserve’s configured maximum. For elevation group positions,
elevationGroup.maxLiquidationBonusBps applies as an additional ceiling.3
Solvency cap: prevent the liquidation from creating bad debt
The bonus cannot exceed the gap between actual debt and collateral value. If a position’s actual LTV is 98%, only 2% of collateral headroom remains, so the bonus is capped at 2% regardless of what the reserve allows. This guarantees the liquidation itself never pushes the position closer to insolvency.
Keeping the Bonus Within Collateral Limits
The bonus is paid from collateral. If the bonus exceeded the remaining collateral headroom, a liquidation could remove more collateral value than the debt it repays and leave the position worse off. Consider a position at 98% LTV with a reserve that normally permits a 10% bonus. Only 2% of collateral value remains above the debt, so the solvency cap overrides the reserve config and forces the bonus down to 2%. Without this cap, the liquidator would seize more collateral than the debt they repaid, pushing the position into bad debt. The solvency cap uses LTV because a borrow factor is a risk adjustment rather than an actual liability. Real collateral headroom is determined by actual debt.Near-Insolvency Behavior
When LTV reaches 99% or more, the engine enters a special liquidation regime:- The close factor increases to 100%, allowing the full position to be cleared.
- The bonus switches to
badDebtLiquidationBonusBps, typically around 1%. - The solvency cap continues to apply.
socialize_loss, which distributes the shortfall across depositors in the affected reserve. This mechanism has never been triggered on Kamino.
Protocol Fee
A reserve can allocate part of the liquidation bonus to the protocol throughprotocolLiquidationFeePct:
Summary
Kamino’s liquidation engine reflects a deliberate balance between borrower protection, liquidator incentives, and protocol solvency.Borrower protection over liquidator convenience
The close factor limits how much debt can be repaid in a single liquidation round. Mildly unhealthy positions can therefore return to health without surrendering a disproportionate share of their collateral. At the same time, the dynamic bonus offers only a modest reward near the health limit, where the risk is still limited.
Safety constraints over liquidator flexibility
The solvency cap prevents the liquidation bonus from pushing a position further toward insolvency. Collateral and debt priority rules are also enforced by the program rather than left to liquidator discretion. These constraints narrow the available liquidation paths while preserving the protocol’s safety conditions.
Incentives that rise with risk
The dynamic bonus increases as a position deteriorates. Positions approaching insolvency become more profitable to liquidate, directing capital and attention toward the debt that presents the greatest risk without requiring centralized coordination.
Progressive liquidation over a single forced sale
Kamino resolves unhealthy positions through smaller liquidation rounds rather than one large intervention. A mildly unhealthy position may recover after a single round, while a more severe position can be reduced progressively. This keeps each correction more proportionate and limits the market impact of the collateral sold.