Risk Dimensions
Insolvency Risk
Insolvency occurs when a borrower’s position becomes unhealthy (LTV exceeds the liquidation threshold) and the liquidation cannot be profitably executed — typically because the collateral token lacks sufficient market liquidity to be sold without excessive slippage. The resulting bad debt is socialized among lenders. Kamino mitigates insolvency risk through:- Rigorous asset risk assessment before onboarding any token
- Continuous market risk monitoring of volatility, liquidity, and price impact
- Conservative LTV and borrow factor parameters calibrated to market conditions
- Protocol safeguards that can unwind risky positions before bad debt materializes
Liquidity Risk
Liquidity risk arises when borrowing demand exhausts the available supply in a reserve, reaching 100% utilization. Lenders cannot withdraw until borrowers repay or new supply arrives. This does not cause financial loss — in fact, it produces exceptionally high interest rates for lenders — but it temporarily restricts withdrawals. Kamino mitigates liquidity risk through:- Interest rate curves calibrated to spike when utilization exceeds target levels, creating economic pressure for repayment
- Daily caps that limit the rate at which borrows can accumulate
- Real-time utilization monitoring with alerting
Systemic Risk
Systemic risk emerges when multiple assets on the protocol are correlated — a broad market downturn triggers liquidations across many positions simultaneously, potentially overwhelming liquidation infrastructure or liquidity. Kamino monitors token correlations and systemic exposure and uses E-Mode caps and supply caps to limit concentrated exposure.Token Onboarding
Every asset listed on Kamino undergoes a 5-dimension risk assessment before it can be used as collateral or borrowed:- Oracle Pricing Risk — reliability and redundancy of the asset’s price feeds
- Smart Contract Risk — audit history, maturity, and battle-testing of the token’s underlying contracts
- Depeg Risk — for pegged assets, the probability and impact of losing the peg
- Counterparty Risk — governance decentralization, holder concentration, and trust assumptions
- Market Risk — volatility, liquidity, and price impact dynamics
| Tier | Description | Implications |
|---|---|---|
| General Asset | Meets all risk criteria | Full cross-margin eligibility, higher LTV limits |
| Isolated Collateral | Elevated risk in one or more dimensions | Can only be used as collateral in isolated mode |
| Isolated Debt | Elevated borrowing risk | Can only be borrowed in isolated mode |
Battle-Tested Track Record
Kamino has operated since November 2023 with $0 bad debt across every market condition — including 5 significant stress events that tested the liquidation infrastructure and risk parameters under real-world conditions.| Event | Date | Collateral Seized | Bad Debt |
|---|---|---|---|
| Flash Analysis | Feb 16–18, 2025 | $4.1M | $0 |
| Market Correction | Feb 24 – Mar 2, 2025 | $22.1M | $0 |
| SOL/ETH Crash | April 6–7, 2025 | $16M | $0 |
| October Correction | Oct 10, 2025 | $20M | $0 |
| SOL -18% Crash | Feb 5–6, 2026 | $19.36M | $0 |
February 2026 Stress Event — Case Study
The most severe test of Kamino’s risk framework occurred on February 5–6, 2026, when SOL dropped 18% (from $92 to $76), ETH fell ~15% (from $2,148 to $1,832), and JLP declined ~10% (from $3.83 to $3.43) over 48 hours. Scale of liquidations:- 55,649 individual liquidation events
- 30,030 wallets affected
- $19.36M in collateral seized
- $0 bad debt generated
| Market | Liquidation Events | Collateral Seized |
|---|---|---|
| Main | 44,665 | $12.79M |
| JLP | 10,560 | $6.47M |
| Bitcoin | 214 | $20K |
| Fartcoin | 67 | $47K |
| JTO | 4 | $12.6K |
Monthly Risk Reports
Since early 2025, Allez Labs has published comprehensive monthly risk reports to the Kamino governance forum — over 14 reports to date. These reports cover:- Protocol-level metrics: Total supply, debt, TVL, transaction volumes, liquidation counts
- Market-by-market analysis: Supply, borrow, and utilization trends across all markets
- Stablecoin and SOL market analysis: Composition shifts, rate dynamics, LST trends
- Vault performance: TVL, curator activity, user flows across Earn Vaults
- Stress testing scenarios: Instantaneous price shock modeling at -10%, -20%, -30%, -40%, -60% levels
- User behavior analysis: Wallet activity, transaction patterns, concentration metrics
Continuous Monitoring
Risk management is not a periodic activity — it runs continuously. The following metrics are tracked in real-time:- Utilization rates per reserve (approaching 100% triggers interest rate escalation)
- LTV distributions across all active positions (clustering near liquidation thresholds indicates elevated risk)
- Oracle staleness and cross-provider deviation (signals potential oracle issues)
- Cap utilization (supply, borrow, and daily caps approaching limits)
- Liquidation-at-risk metrics (what percentage of positions would be liquidated at various price shock levels)
- Vault allocation changes (unusual curator behavior)