Collateral — what it is and why you need it
Aaron borrows 3,000 USDC against his SOL without selling any. Collateral works like a house for a bank, and one number, LTV, decides how safe the loan is. We cover the zones, the 75% liquidation limit for SOL on Kamino, and why even a 30% LTV needs a crisis plan after a 76% price fall in a year.
After this module
You'll learn to unlock liquidity against your SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → or ETH without selling it — and control the risk yourself through a single number, LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →. LiquidationLiquidationWhen LTV exceeds the threshold and the protocol automatically sells your collateral to cover the debt.Read the lesson → will stop being a looming threat: you'll know its price in advance and know exactly which LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is worth holding.
Imagine you want to borrow money from a bank. The bank asks: "What will you give as a guarantee?" You say: "My house." The bank agrees and gives you the loan.
DeFi lending (borrowing) works exactly the same way. Except instead of a house — you hand over cryptocurrency. And instead of a bank — everything runs through a computer program (a smart contract — self-executing code that follows rules known in advance, applied identically to everyone).
The house analogy — how it works
Imagine your house is worth $200,000. The bank says: "Fine, I'll lend you $140,000, because your house is worth enough." If you don't repay — the bank takes the house. DeFiDeFiDecentralized Finance — financial services without intermediaries, operating through smart contracts.Read the lesson → works identically, just faster and without the paperwork.
| Bank loan | DeFi lending | |
|---|---|---|
| Collateral (what you give) | House ($200,000) | 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → ($11,088) |
| Loan (what you get) | $140,000 | 4,704 USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → |
| Who values it | An appraiser | Smart contract (every second) |
| Interest | 4–6% per year | ~5–7% per year (variable) |
| How long it takes | 2–4 weeks | 10 seconds |
| If you don't repay | Bailiff (6–12 months) | Automatic (within seconds) |
| Runs 24/7 | No | Yes |
At a bank you "lock up" a house to get a loan. In DeFiDeFiDecentralized Finance — financial services without intermediaries, operating through smart contracts.Read the lesson → you "lock up" cryptocurrency (SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → or ETH) and get stablecoins (USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →). The principle is the same. Only the speed and accessibility differ.
LTV — the most important number to know
LTV (Loan-to-Value) means: how much you owe compared to what you put up as collateral. It's the debt-to-asset ratio.
If your house is worth $100,000 and your loan is $30,000 — your LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is 30%. That means your debt is 30% of your asset's value. The lower the LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →, the safer you are.
The LTV formula
LTV = Debt value / Collateral value
Example:
- CollateralCollateralThe asset you deposit in order to borrow. In DeFi this is typically crypto (SOL, ETH).Read the lesson →: 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → at $88 = $11,088
- Debt: 4,704 USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → = $4,704
- LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → = $4,704 / $11,088 = 42.4%
That means your debt is 42.4% of your collateral. The remaining 57.6% is your safety "cushion".
The examples use SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → = $88. At the time of writing (2026-09) the market price was around $102 — the figures are illustrative, and the mechanism does not depend on the price. Interest and yield figures are snapshots from that date and change constantly.
Weighted margin — a more precise version of LTV
This course calculates things a bit more strictly than the protocol does. We use weighted margin — a formula with built-in safety coefficients:
Weighted LTV = (Debt × 1.05) / (Collateral × Price × 0.90)
What this means in plain terms:
- × 1.05 — we value your debt as 5% larger (to be safe)
- × 0.90 — we value your collateral as 10% smaller
Example:
- CollateralCollateralThe asset you deposit in order to borrow. In DeFi this is typically crypto (SOL, ETH).Read the lesson →: 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → × $88 × 0.90 = $9,979
- Debt: 4,704 × 1.05 = $4,939
- Weighted LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → = $4,939 / $9,979 = 49.5%
The simple formula shows 42.4%, while the safety coefficients give 49.5%. One thing to be clear about: this is NOT how KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → actually calculates. KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → compares your debt (multiplied by a borrow factor) against your collateral value and checks the result against the liquidation threshold — there is no 1.05 or 0.90 anywhere in the protocol. This course uses them deliberately, as a safety margin: it errs on the cautious side and warns you earlier than the protocol would. Always check your real LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → in your own position screen.
The color system — how to know if you're safe
Think of it like a traffic light. Green = safe. Red = danger.
Above is an LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → gauge similar to the one on the KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → or AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson → dashboard. The needle points to 42% (our strategy's starting LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →). It's green up to 45%, then moves through yellow, orange, red, and above 75% — liquidation. This gauge is your dashboard: one glance, and you know what to do.
| LTV level | Color | What it means | What to do |
|---|---|---|---|
| ≤ 45% | Green | Calm zone | Check weekly |
| 46–55% | Yellow | Worth watching | Check daily |
| 56–65% | Orange | Time to act | Start reducing debt |
| 66–75% | Red | Act now | Repay debt or add collateral |
| > 75% | Black | LiquidationLiquidationWhen LTV exceeds the threshold and the protocol automatically sells your collateral to cover the debt.Read the lesson → | The system sells your assets |
75% is the liquidation threshold (liqLTV) for SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral on KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → SOL — checked via the KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → API on 2026-09-05; the maximum borrowing LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is 74%. Other collateral has other thresholds: USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → is 90%, and WETH on AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson → ETH is around 83%. Since V2, KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → is no longer a single market: it runs roughly 40 markets with different parameters and different curators, so check the threshold in the market where you actually open the position. These parameters can change.
Why is 30% the calm zone?
If your LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is 30%, the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price needs to drop about 60% to reach the liquidation threshold (75%). That means:
- In the example, with SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → at $88 → liquidation around ~$35
- That's a large buffer, but NOT an unreachable one. In the 12 months to 2026-09, SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → fell from $253 (2025-09) to $60 (2026-06) — roughly −76%, more than those 60%. A position opened in September 2025 at a "safe" 30% LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → would have been liquidated.
So even at 30% LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → you need a crisis plan, not an assumption that the threshold is out of reach.
If your LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is 55%, the buffer is narrower — a 27% drop is enough, and swings that size can happen within days in crypto markets. But here's the key point: you choose how wide that buffer is when you decide how much to borrow. The liquidation price is known in advance — which is why choosing 30% LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is a deliberate decision, made so you can sleep soundly.
Why is DeFi lending better than a bank?
- Speed: A loan in 10 seconds. Not a month.
- Always open: 24 hours a day, 7 days a week.
- Transparent: All the rules are visible in the code. No hidden terms.
- No credit history needed: Your collateral is your credit.
- Flexible repayment: Repay any time, in parts, with no penalties.
- Collateral earns: Your SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → on KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → generates around 4.7% a year (2026-09; a variable rate that depends on demand). At a bank, your house earns nothing while it's pledged.
How we use this in our strategies
Strategy A — SOL/ETH Covered Call + LP
SOL Kamino- You deposit SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → as collateral into Kamino SOL (for an ETH position — Aave ETH)
- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → earns ~4.7% a year from day one (2026-09, variable. ETH on AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson → ETH was around 1.4% at the same time)
- Keep LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → around ~30% (a safe level)
- Use the borrowed USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → for other yield strategies
Strategy B — Multi-Layer Yield
SOL Kamino- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → as collateral at ~42% LTV
- BorrowBorrowTaking a loan in a DeFi protocol against deposited collateral.Read the lesson → USDC (the largest regulated stablecoin on SolanaSolanaA fast blockchain (under 1s, gas under $0.01). Home to the Kamino, Orca and Meteora ecosystem.Read the lesson → — you pay ~5-7% interest)
- Weighted margin: collateral × 0.90, debt × 1.05
- LiquidationLiquidationWhen LTV exceeds the threshold and the protocol automatically sells your collateral to cover the debt.Read the lesson → at 75% — a wide distance away (KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson →'s SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral threshold, 2026-09)
A numbers example — $10,000
Say you have $10,000 worth of SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → (113.6 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → at $88):
| Parameter | 30% LTV | 42% LTV | 55% LTV |
|---|---|---|---|
| CollateralCollateralThe asset you deposit in order to borrow. In DeFi this is typically crypto (SOL, ETH).Read the lesson → value | $10,000 | $10,000 | $10,000 |
| Debt amount | $3,000 | $4,200 | $5,500 |
| Drop needed to reach danger | −60% ($35) | −44% ($49) | −27% ($65) |
| Risk | Low | Medium | High |
| Capital available to use | $3,000 | $4,200 | $5,500 |
The table gives the protocol's actual liquidation prices: Debt / (Collateral amount × 0.75). The lesson's calculator adds the course safety coefficients (× 1.05 on debt, × 0.90 on collateral), so for the same 30% scenario it will show roughly $41 rather than $35. Both numbers are correct in their own terms: $35 is where the protocol liquidates, $41 is where the course warns you. That ~$6 gap is your safety margin, not an error.
Start with 30% LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →. That means less capital put to work, but a huge safety "cushion" and calm sleep. Once you're managing the position confidently and checking it regularly, you can move to 42%+. Starting at 30% is a deliberate decision, not caution born from fear.
Try it yourself
LTV Kalkuliatorius
Glossary
| Term | What it means, simply |
|---|---|
| Collateral | The asset you put up as a guarantee for a loan |
| LTV | How much you owe compared to what you put up as collateral (as a percentage) |
| Weighted margin | A stricter version of LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → with safety coefficients |
| Liquidation | When the system automatically sells your collateral |
| Buffer | The distance between your current situation and the danger zone |
| Lending APY | The interest your collateral earns per year |
In short
- Collateral = a guarantee, just like a house for a bank. You give crypto, you get a loan.
- LTV = Debt / Collateral — the lower, the safer.
- Weighted margin — your real LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → is higher than the simple version. Watch that one.
- 30% LTV — the safest starting level.
- DeFiDeFiDecentralized Finance — financial services without intermediaries, operating through smart contracts.Read the lesson → lending is faster, more transparent, and more accessible than a bank.
- Your collateral earns interest even while it's "locked up".
Understanding LTV is the foundation of every lending strategy. This task takes about 5 minutes, and afterward you'll know how much borrowing would be safe in YOUR scenario. No real money needed.
This is a paper exercise — no real money and no connecting to any protocol required. You'll get ready for actual borrowing only once you have a full plan (lesson 3-5).
This is learning, not investing — use only small amounts you treat as tuition.
You just calculated the weighted LTV and liquidation price for three scenarios. Most people borrow without ever seeing these numbers.