Easing into DeFi with Kamino
Jumping into DeFi (Decentralized Finance) for the first time can feel overwhelming or confusing. With all the complex strategies out there, it’s easy to feel lost. This Kamino guide is meant to introduce and simplify things for you, helping you earn yield without taking on unnecessary risk or getting caught up in overcomplicated strategies with high leverage.
For years, we’ve been told to stash our money in a checking account or even under the mattress (no judgment). But what if your money could actually work for you, earning way more yield than your bank offers, without having to go full degen?
For years, we’ve been told to stash our money in a checking account or even under the mattress (no judgment). But what if your money could actually work for you, earning way more yield than your bank offers, without having to go full degen?
From my experience using DeFi on Ethereum (EVM) chains and Solana, I’ve found Solana to be much more beginner-friendly. Unlike many Ethereum protocols that reward you in their own tokens instead of the ones you originally supplied, Solana keeps things simple. Take Kamino, for example, it rewards you primarily in SOL, stablecoins and sometimes a bonus incentive(like JTO), not Kamino tokens. This straightforward approach makes earning yield easier and cuts out some of the pain points that come with Ethereum or its million Layer 2s.
If you’re ready to start learning about DeFi, let’s keep it simple and dive in!
Putting your stable coins to work.
Sadly, most bank accounts offer next to nothing in interest. But out in the world of DeFi, there are plenty of ways to put your money to work and actually see some returns. Why let your money sit around doing nothing when it could be making more money for you?
One of the easiest and low risk ways to do this is by lending out stablecoins or adding them to a stablecoin liquidity pair. Since both assets stay pegged at one dollar, you do not have to stress about impermanent loss, making it a simple and steady way to earn yield without unnecessary risk.
What is impermanent loss?
Impermanent loss sounds complicated, but it is really just a fancy way of saying that the value of the tokens you put into a liquidity pool can change over time. When you provide two tokens to a pool, their prices do not always move together. If one token goes up or down more than the other, the amount of each token in your share of the pool shifts. When you go to withdraw, you might end up with less of the token that gained value and more of the one that dropped.
Impermanent loss sounds complicated, but it is really just a fancy way of saying that the value of the tokens you put into a liquidity pool can change over time. When you provide two tokens to a pool, their prices do not always move together. If one token goes up or down more than the other, the amount of each token in your share of the pool shifts. When you go to withdraw, you might end up with less of the token that gained value and more of the one that dropped.
Borrow/Lend
You can choose to supply tokens you have to users looking to borrow them via Kamino and earn yield on that because they are paying interest to borrow it, so you get most of that as a return. For the sake of simplicity, here are some current rates on SOL and some stable coins. I’m focusing on supplying liquidity without borrowing more tokens for a simple way to earn vs keeping your tokens parked in your wallet. This is single token lending vs two tokens paired together.
SOL - (Lend)
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Jito Market - 7.49%(5.96% lending APR + 1.52% JTO (Jito) Tokens) - Borrow rate on SOL is 7.4%
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Main Market - 3.06% - Borrow rate on SOL is 5.19%
Stablecoins - (Lend) - USDC/PYUSD/USDT
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JLP Market - USDC - 5.8% - PYUSD - 4.82% - USDT - 4.48%
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Main Market - USDC - 5.5% - USDS - 7.06% - FDUSD - 8.27% - PYUSD - 4.06% - USDT - 3.16%
Liquidity Pools
A liquidity pool pairs 2 tokens together, such as SOL-USDC, BONK-SOL, etc. Kamino has a good selection of SOL-LST(Liquid Staked SOL) pairs available that can be an easy way to deploy your funds, with less concern. Some of the bigger pairs allow you to add a single token vs having to add an equal(or % of each), such as the JITOSOL-SOL pair that is rewarding over 12% rewards in JTO tokens. You’d deposit SOL and it would balance it into a split of JitoSOL (liquid staked and gains value over time) and Solana tokens. This can also be a way to get partial exposure into an LST, while keeping risk low and gaining bonus rewards.
The asset ratio in this particular pair is 90.35% SOL/ 9.65% JitoSOL, so the exposure to an LST is on the lower end. When you withdraw, you can choose to take out a split of the tokens or a single token
They also have liquidity pairs for stable coins and they can often have bonus rewards. At the time of writing, there is a USDS-USDC pool which is rewarding around 11% rewards in USDS. Some pools, like the FDUSD-USDC pool, is at 6.67%, but also earns points for Meteora. It’s worth checking out the pools, because sometimes you can earn bonus points or higher yields during a promotion and your risk of liquidation is basically zero because both are pegged to $1.
Multiply
Another very popular option on Kamino is to use multiply. This is a strategy people have been using in DeFi for a long time, but they simplified it to being a single click choice. We will focus on the LST options. In my own personal experience, I’ve stayed closer to the 3-3.5x range so my LTV(Loan to Value) ratio isn’t too high.
How does it work?
You select one of the options of LST’s and then can choose to deposit SOL or the LST (such as JupSOL, JitoSOL, etc) and choose the multiplier amount. Most have a max of 4-5%, but that doesn’t mean you need to do max leverage. If you deposited SOL into a JupSOL position, it will trade the SOL for JupSOL and then borrow SOL, buy more of the liquid staked token, in a loop.
As long as the borrow rate for SOL tokens is lower than the yield the Liquid Staked Token receives, you are getting bigger rewards.
According to Kamino, Multiply is a safe way to deploy your SOL and get maximum rewards in an easy way.
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SOL Multiply positions are immune to LST price depegs
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Pricing LSTs in Multiply using market prices, Kamino has developed an in-house oracle that reads prices directly from the stake pool
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This means LSTs are ALWAYS priced at the stake rate price, and can NEVER depeg due to market sell-offs.
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Essentially, severe market sell-offs simply cannot affect a Multiply position. The LST price remains pegged to the SOL price. This also means a severe drop in SOL price itself cannot liquidate a position
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If Kamino used market prices, even the slightest depeg will affect an LST/SOL leveraged position
How do you know if you are earning a yield?
As long as the yield on your yield-bearing asset is higher than the borrow rate, you will have a positive Net APY. While your Net APY is positive, your position's SOL balance should be increasing.
As long as the yield on your yield-bearing asset is higher than the borrow rate, you will have a positive Net APY. While your Net APY is positive, your position's SOL balance should be increasing.
Where does the yield come from?
There are two sources of yield, depending on the vault you are using: SOL staking yield, from tokens like mSOL, JitoSOL and bSOL and market making yield, earned via trading fees from Kamino liquidity vaults.
There are two sources of yield, depending on the vault you are using: SOL staking yield, from tokens like mSOL, JitoSOL and bSOL and market making yield, earned via trading fees from Kamino liquidity vaults.
My Experience
In my experience of using Kamino since Season 1 launched, I have found it to be very simple to use to gain yields on my assets instead of having them sit in my wallet doing nothing. I am not one to borrow heavily against my collateral as my risk tolerance tends to be on the lower end of the spectrum for tokens I consider long term holds. I started with smaller amounts to test it out and over time decided to deploy more assets in a way that fits my investment thesis.
If you are looking for a way to dip your toes into DeFi, Kamino can be a straight-forward way to test it out. I took the rewards from season 1, staked them and continue to keep them on the platform because I use it vs airdrop farming to dump. Staking Kamino ($KMNO) provides bonus points in their current seasons as well. Like any investment, it’s important to do your own research and decide if it’s a good fit for you or not.
Official Links
X: @KaminoFinance
Website: https://app.kamino.finance/
Discord: https://discord.com/invite/kaminofinance
Website: https://app.kamino.finance/
Discord: https://discord.com/invite/kaminofinance
*All Rates shown were taken at the time of writing
Disclaimer: Not Financial Advice
The information provided in this article is for educational and informational purposes only and should not be construed as financial, investment, or legal advice. DeFi and Cryptocurrency investments can involve significant risks, including the risk of total loss. You should conduct your own research before making any investment decisions. The author and publisher are not responsible for any financial losses or damages resulting from actions taken based on the information presented in this article. Always invest responsibly and within your financial means.