A position becomes eligible for liquidation when Current LTV exceeds Liquidation LTV. LTV is calculated using risk-adjusted debt values:
Current LTV = risk-adjusted debt value / collateral value
Risk-adjustment applies Borrow Factors to each debt asset, which can compress the effective safety margin for positions holding higher-risk borrowed assets. See Borrowing for how Borrow Factors work. Positions do not liquidate the moment they are opened — they only become eligible when asset price movements push the LTV above the liquidation threshold after origination.
Kamino does not liquidate entire positions in a single event. Each liquidation can close a maximum of 20% of the position’s debt. If the position remains above Liquidation LTV after the first round, another round can be applied. This iterative structure protects borrowers who briefly breach the threshold: a small overshoot results in a proportionally small liquidation, not full position closure. A borrower who adds collateral or repays debt between rounds can stop the process entirely.If a position’s LTV exceeds the market’s insolvency-risk threshold (typically 95%), the close factor increases to 100%, allowing full liquidation in a single event. This prevents positions from sliding into bad debt (where debt exceeds collateral value) when partial liquidations would be too slow.
Liquidators are compensated with a bonus paid in collateral. The bonus is dynamic: it scales with how far the position’s LTV has breached the Liquidation LTV threshold.The bonus moves through four phases as a position deteriorates:
LTV region
Bonus behavior
At Liquidation LTV
Starts at the minimum bonus configured for the reserve
Above Liquidation LTV + min bonus
Scales upward: bonus equals the distance between current LTV and Liquidation LTV
At Liquidation LTV + max bonus
Capped at the maximum bonus configured for the reserve
Approaching 100% LTV
Solvency cap: bonus decreases so that it never exceeds the remaining distance to 100% LTV, because a bonus larger than that gap would worsen the position’s health
For a reserve with a 2% minimum bonus, 8% maximum bonus, and 75% Liquidation LTV:
Current LTV
Bonus
Reason
75%
2%
At liquidation threshold, min bonus applies
77%
2%
Distance (2%) equals min, floor still holds
80%
5%
Distance (5%) exceeds min, bonus scales with breach
83%
8%
Distance (8%) hits max cap
88%
8%
Held at max
92%
8%
Solvency cap begins: only 8% remains to 100%, bonus equals the cap
96%
4%
Solvency cap overrides: only 4% remains to 100%
99%
1%
Near bad debt, bonus minimized to protect solvency
The solvency cap is what prevents liquidations from pushing a position deeper into trouble. A position at 96% LTV cannot absorb an 8% bonus without exceeding 100% LTV, so the protocol forces the bonus down to what the position can sustain.This structure serves both sides. Borrowers who are promptly liquidated near the threshold lose less collateral (a small bonus). Liquidators facing deeper breaches earn larger bonuses but take on more execution risk. Near insolvency, the protocol prioritizes recovering the position over rewarding the liquidator.
Liquidations on Kamino Borrow are permissionless. Any actor can call the liquidation instruction on an unhealthy position and earn the bonus. In practice, automated bots monitor all open positions continuously and execute the moment a position crosses the liquidation threshold. The minimum bonus is sufficient compensation for immediate action.
In extreme scenarios where standard liquidations fail to resolve unhealthy positions — such as severe market volatility or insufficient liquidator activity — Kamino has an auto-deleveraging mechanism that can proportionally reduce the largest leveraged positions in the system. This is a last-resort safety measure designed to protect the solvency of the lending pools when normal market incentives are insufficient. It has not been triggered in Kamino’s operational history.
The primary levers for managing liquidation risk are:
Maintain a buffer — Keep Current LTV well below Liquidation LTV. A tight buffer leaves no margin for collateral price drops or rising debt from accruing interest.
Monitor collateral value — A decline in collateral price directly increases Current LTV, moving the position toward the liquidation threshold without any borrower action.
Monitor borrow rates — Variable rates mean your debt balance grows faster when rates rise. Sustained high utilization in a pool increases debt continuously, compressing your buffer.
Add collateral or repay debt — Either action reduces Current LTV. Repaying debt is typically more capital-efficient when you are close to the threshold.
Use Repay with Collateral — Allows you to deleverage atomically by converting deposited collateral into the debt asset and repaying in a single transaction, without needing to source the repayment token externally. See Borrowing.
Assistant
Responses are generated using AI and may contain mistakes.
