Foundations
The peer-to-pool model
Kamino Borrow is a peer-to-pool lending market. Depositors contribute assets into shared liquidity pools. Borrowers draw from those pools. The protocol mediates automatically — setting rates, tracking position health, and executing liquidations — with no counterparty matching required. This contrasts with order-book lending, where a specific lender must be matched to a specific borrower before a loan can begin. Peer-to-pool lending has no such requirement. Capital is fungible within the pool, and any borrower can draw from it the moment they post sufficient collateral. The consequence is permissionless borrowing: no underwriting, no identity check, no credit assessment. The collateral is the only guarantee. As long as the borrower’s position remains overcollateralized, the protocol enforces the loan automatically and the lender has no exposure to borrower identity or intent.What is a reserve
A reserve is a pool for a single asset within a market. All deposits of USDC in the SOL/BTC Market enter the same USDC reserve. All borrows of USDC in the SOL/BTC Market draw from that same pool. The same deposited dollar is lent simultaneously to multiple borrowers through accounting — the reserve tracks total deposits, total amount borrowed, the current rate, and each lender and borrower’s proportional share. Each asset has its own reserve because different assets carry different risk profiles and warrant different rate parameters. SOL and USDC should not share a pool — their volatility, liquidity, and acceptable LTV ratios differ materially. Reserves exist in both rate models. In the variable model, there is one reserve per asset per market. In the fixed model, there is one reserve per rate-and-duration combination per asset per market — the USDC 5.5% 3-month reserve is completely separate from the USDC 6.0% 6-month reserve. The reserve is the fundamental unit across both models.What is a market
A market is an isolated collection of reserves governed by shared risk parameters. Collateral deposited in one market cannot be used to borrow from another. Liquidity does not flow between markets. Risk does not either — a liquidation cascade or parameter change in one market has no effect on positions in another. Kamino currently operates four markets:
For full detail on market structure, position modes, and cross-collateralization, see Markets.
Overcollateralized lending
Every loan on Kamino is backed by more collateral value than the loan itself is worth. A borrower cannot receive $1,000 without first depositing collateral worth more than $1,000. This requirement exists because DeFi lending has no identity layer. There is no credit history, no legal recourse, and no way to compel repayment beyond the collateral already posted. Overcollateralization is not a tax on the borrower — it is the mechanism that makes anonymous, permissionless lending possible at all. It substitutes collateral for the creditworthiness checks that traditional lenders rely on. The degree of required overcollateralization varies by asset and market, governed by Max LTV and Liquidation LTV parameters.LTV — the three values
LTV (Loan-to-Value) measures your debt relative to your collateral.
The buffer that actually matters is the gap between Current LTV and Liquidation LTV — not the gap between Current LTV and Max LTV. Max LTV is already consumed at origination. The real safety margin is how much further your collateral can fall before the protocol can begin liquidating you.
Concrete example:
- Deposit 50 SOL at $200 = $10,000 collateral. Borrow $7,000 USDC → Current LTV = 70%
- SOL drops to $175 → collateral = $8,750 → Current LTV = 80% → eligible for liquidation
After a year, the position has drifted from 70% to 77% LTV with no price movement. This applies identically in both variable and fixed rate models — fixed rates eliminate rate uncertainty but not the compounding effect.
Borrow Factors
Borrow Factors are a risk adjustment multiplier applied to debt assets. Stable, liquid assets like USDC carry a Borrow Factor of 1.0 — no adjustment. Higher-risk or less liquid assets carry Borrow Factors above 1.0, which reduce your effective borrowing capacity and raise your risk-adjusted LTV.
A Borrow Factor of 2.0 halves your effective borrowing capacity. It also doubles your effective risk-adjusted LTV for an equivalent real debt size — a position that looks healthy by market values may be much closer to liquidation once the Borrow Factor is applied.
Liquidation mechanics
When a position’s Current LTV exceeds Liquidation LTV, it becomes eligible for liquidation. Two design choices protect borrowers from catastrophic outcomes: Close factor — 10% per round. Liquidators may only close up to 10% of a position in a single liquidation event. If the position remains above Liquidation LTV after the first round, a second round can be applied. A borrower who adds collateral or repays debt between rounds can stop the process entirely. This prevents full wipeout from a brief, shallow breach. Dynamic liquidation penalty — 0.1% to 10%. The penalty starts at 0.1% for immediate liquidation and rises up to 10% as the position remains unhealthy longer. This structure serves both sides: borrowers lose less collateral if liquidated promptly; liquidators earn larger bonuses for waiting but take on execution risk from further price movement. The escalating penalty is the mechanism that incentivizes early resolution before the position deteriorates further. For full liquidation mechanics, eligibility conditions, and how to avoid liquidation, see Liquidations.eMode / Elevation Mode
When collateral and borrowed assets are closely correlated — for example, JitoSOL as collateral and SOL as debt — their prices move together. A price shock large enough to push a JitoSOL/SOL position into liquidation is far less likely than a shock to a JitoSOL/USDC position. eMode (Elevation Mode) recognizes this by permitting significantly higher Max LTV for approved correlated pairs.
eMode is the mechanism that powers Kamino’s Multiply product — capital-efficient leveraged exposure to correlated asset pairs. For configuration and eligibility, see Markets.
Variable Rate Model
How variable rates work
Variable rates are governed by a single observable signal: utilization — the fraction of a reserve’s total deposits that is currently borrowed.- 100% utilization — all deposited capital is borrowed. No withdrawals are possible until borrowers repay. This is the failure mode the rate curve is designed to prevent.
- 0% utilization — no capital is borrowed. Lenders earn nothing. This resolves naturally as borrowers arrive.
The interest rate curve and the kink
Kamino uses a two-segment rate curve with a kink at the target utilization level. Below the kink — rates rise gradually. The pool is healthy: borrowing is affordable, withdrawal liquidity is available, lenders earn competitive yield. Above the kink — rates escalate steeply. This is a correction mechanism, not a punishment. The steep rates create strong pressure for borrowers to repay and for new lenders to deposit, which pulls utilization back below the kink. The high rates are temporary — they resolve as the market responds. Illustrative borrow rates for a USDC reserve:
What lenders actually earn:
Fixed Rate Model
Why fixed rates exist — and what they trade off
Variable rates are capital-efficient and self-correcting, but they are unpredictable. A leveraged carry strategy that earns 8% annualised can flip to a loss overnight if the borrow rate spikes from 5% to 20%. For treasury management or institutional deployment, unpredictable borrowing costs are a planning problem, not just a risk. Fixed rates solve this by locking the borrow cost for a defined term. A 5.5% 3-month loan charges 5.5% through the end of its term regardless of what utilization does in the variable pool. The cost is flexibility — you are committed to a term, and exiting early carries a penalty during the first term. Neither model is inherently superior. They serve different needs:The rate grid
Fixed rates are not a modification of the variable pool. They are a separate structure: multiple independent reserves per debt token, each defined by a specific rate AND a specific duration. The USDC 5.0% 3-month reserve and the USDC 5.5% 6-month reserve are entirely distinct:- Own liquidity pool
- Own set of borrowers
- Own set of lenders
- No interaction between them
Not every cell is populated. Curators and governance determine which rate-duration combinations exist. A large repayment in one reserve does not affect liquidity in any other. Reserve isolation is complete.
The yield curve and term premium
The rate grid creates a visible, on-chain term structure — what the market currently prices for 1-month, 3-month, 6-month, and 12-month USDC lending. This is the yield curve for that asset. The term premium is the additional yield lenders require to lock capital for a longer duration. If the 3-month USDC rate is 5.0% and the 6-month rate is 5.5%, the term premium for the additional 3 months is 0.5%. It reflects the lender’s compensation for reduced liquidity and increased uncertainty over a longer horizon. When demand for longer-duration borrowing rises, rates in longer-duration reserves rise relative to shorter ones — the market signals that long-term capital is scarce. This is how traditional fixed-income markets work. Kamino’s rate grid brings this price discovery on-chain for the first time in DeFi.Conditional Liquidity — the key innovation
Fixed-rate reserves have an inherent problem for lenders: capital sitting in a fixed-rate reserve earns nothing until a borrower arrives. A vault pre-positioning into the USDC 5.5% 6-month reserve before any borrowers appear destroys yield — all that capital sits idle. Conditional Liquidity solves this. Capital remains in a variable-rate reserve, earning the live variable yield. The vault simultaneously posts a conditional signal on one or more fixed-rate reserves, declaring that it can fill up to a specified amount at that rate and duration. No capital moves. No yield is lost. When a matching Borrow Order is submitted:- The protocol pulls the required amount from the vault’s variable-rate position
- Deposits it into the target fixed-rate reserve
- Delivers it to the borrower
Conditional Liquidity is a vault-level feature. Retail lenders depositing directly into a reserve provide committed liquidity to that specific reserve immediately and do not post conditional signals.
Borrow Orders
In the variable model, borrowing is immediate: collateral posted, borrow executed in the same transaction (subject to available liquidity). In the fixed-rate model, borrowers express demand via a standing Borrow Order. A Borrow Order specifies:- Debt token — e.g., USDC
- Maximum acceptable rate — the order will not fill at any rate above this ceiling
- Minimum duration — the shortest term the borrower will accept
- Expiry — how long the order remains open before auto-cancelling
Rollover and the withdrawal queue
Fixed-rate loans have a defined term with an end date. Loans are created with auto-rollover on by default, and at the end date the protocol rolls the loan into a new fixed-rate term in the same reserve, at the same rate. Rollover succeeds when the reserve has liquidity available and no withdrawal tickets are queued, and the loan extends for another full term at the same rate. Rollover happens during a window that opens before the end date, with its length configured per market, and completes shortly after opening when liquidity is available. If it does not succeed, the loan does not roll over and there is no pending state. You can also repay and close the loan at any time before the end date. Rollover is not guaranteed. It requires available liquidity in the target reserve and no lenders queued for withdrawal. The withdrawal queue is how lenders signal intent to exit before term end. Lenders cannot withdraw on demand mid-term, because capital is committed for the duration. Instead, they submit a withdrawal ticket specifying the amount they want returned. Tickets enter a per-reserve FIFO queue and fill as capital re-enters through repayments. The queue directly gates borrower rollover. Any queued withdrawal ticket in a reserve blocks rollover for all borrowers in that reserve. Lenders wanting out take priority over borrowers wanting to stay. Borrowers planning to roll should check for queued tickets before the term ends. Auto-repay. A position that reaches its end date without rolling over, and that the borrower does not close, enters Auto-repay: Kamino gradually repays the debt using the borrower’s collateral, subject to fees, over a window configured per market, in small increments. Auto-repay begins at the end date, and its cost ramps with time, so closing early in the window costs less than letting it run, and closing before the end date avoids Auto-repay entirely.Early repayment
You can repay a fixed-rate loan at any time before the term ends. During the first term only, an Early Repay Penalty applies. The penalty compensates lenders for the early return of capital they committed for the agreed duration. It is calculated based on the minimum interest that would have accrued had the loan run its full term. After a rollover into a subsequent term, there is no Early Repay Penalty. You can exit at any time without cost.The Early Repay Penalty applies during the first term only. Once a loan rolls over into a new term, you can exit at any time without penalty.