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Kamino Lend operates an overcollateralized borrowing model where all debt positions require collateral exceeding the borrowed amount. The relationship between collateral and debt is expressed as the loan-to-value (LTV) ratio, which measures position health and liquidation risk.

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Partial Liquidations

Rather than closing entire positions, Kamino Lend enables soft liquidations. A borrower slightly exceeding the liquidation LTV threshold faces a smaller debt reduction—typically 10% of the debt per liquidation event—rather than account liquidation. This graduated approach protects users who marginally breach thresholds while still penalizing those far exceeding them proportionally.

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Dynamic Liquidation Penalties

Traditional DeFi liquidation penalties (5-10%+) compensate liquidators for execution risk. Kamino Lend implements a progressive penalty structure:
  • Starting penalty: 2% for immediate liquidations
  • Maximum penalty: 10% at highest risk thresholds
  • Benefit: Efficient liquidators are rewarded with minimal penalties, while borrowers who delay correction face escalating costs

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Instant Liquidation Example

User A’s position reaches 80% LTV (liquidation threshold). A liquidator immediately executes, repaying 10% of debt and receiving 10.2% of collateral (10% × 2% penalty). The account remains open with lower LTV.

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Delayed Liquidation Example

User B’s position reaches 80% LTV but isn’t liquidated immediately. As LTV climbs to 90%, the penalty rises to 10%. The liquidator then repays 10% of debt while receiving 11% of collateral (10% × 10% penalty), demonstrating higher costs for delayed correction.