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How interest rates work

Kamino uses utilization-based interest rate curves. Utilization is the ratio of borrowed assets to total deposited assets in a reserve — if a pool holds $1,000 and $700 is borrowed, utilization is 70%. As utilization rises, the borrow rate rises with it: low utilization means cheap borrowing, which attracts demand; high utilization means expensive borrowing, which pressures borrowers to repay and attracts new lenders. The curves are parameterised so that each reserve self-corrects toward a target utilization band. As utilization approaches 100%, rates escalate sharply to prevent full pool depletion and ensure lenders retain the ability to withdraw.

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Lender yield vs. borrow rate

Lenders do not earn the full borrow rate. The supply APY is: 
Supply APY ≈ Borrow Rate × Utilization
If borrowers pay 8% and utilization is 70%, lenders earn approximately 5.6%. The idle 30% of capital earns nothing and dilutes the aggregate return. This spread between borrow rate and supply APY is the structural cost of instant liquidity — by maintaining a buffer of undeployed capital, the pool guarantees lenders can exit at any time without waiting for borrowers to repay.

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Interest rate spreads

The protocol retains a portion of interest paid by borrowers. This spread is taken from the borrow rate before it is passed through to lenders, and it varies by market and asset.
Asset(s)MarketProtocol Spread
SOLMain Market11%
USDCMain Market15%
USDTMain Market15%
mSOL, JitoSOL, bSOLMain Market15%
wETHMain Market15%
tBTCMain Market15%
USDCJLP Market20%
USDCAltcoins Market20%
Spreads are expressed as a percentage of interest paid by borrowers — not as a percentage of principal. A 15% spread on a 10% borrow rate means lenders receive 8.5%, not 10%.

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Liquidation penalties

When a position is liquidated, the liquidator receives a bonus paid in collateral on top of the amount needed to repay the debt. The penalty is dynamic and scales with how long the position remains unhealthy:
TimingPenalty
Immediate liquidation0.1%
Delayed liquidation0.1% → 10% (scales up)
Maximum penalty10%
The dynamic structure rewards efficient liquidation: an immediate liquidator earns a small but certain bonus; a slow one earns more but faces execution risk from further price movement. For the borrower, prompt liquidation is the better outcome — a position resolved quickly loses less collateral than one that remains unhealthy while the penalty accrues.

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No other fees

There are no deposit fees, withdrawal fees, or origination fees on Kamino Borrow. The only costs to borrowers are interest on outstanding debt and, if applicable, liquidation penalties on unhealthy positions. → See Concepts for a deeper explanation of the rate curve, the kink, and how utilization governs lender yield.