Liquidation — a controlled number, not a surprise
Edith does nothing, her debt stays the same, and her LTV climbs from 30% to 75% because the price falls. How liquidation works on Kamino and Aave, how to calculate the liquidation price in advance, why slices of liquidation repeat at the bottom, and a 4-level plan at LTV 40, 50, 58 and 62%.
Imagine you have a house and a loan. If you stop paying — the bank can take your house. DeFiDeFiDecentralized Finance — financial services without intermediaries, operating through smart contracts.Read the lesson → works the same way, just much faster.
Liquidation is the moment a smart contract automatically sells your collateral (SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → or ETH) because your debt has become too large compared to it. The key thing you'll take from this lesson: it happens at one specific price, which you know in advance.
Imagine you gave a friend your bike as collateral for a 50 EUR loan. If the bike's value dropped to 55 EUR — your friend would sell the bike to get their money back. Without asking you. That's liquidation.
When does liquidation happen?
When your LTV (loan-to-value ratio; debt/collateral) exceeds 75% — the smart contract (self-executing program code) sells your assets.
The smart contract runs on code — not mood, not negotiation. That works in your favor: the rules are known in advance and identical for everyone. You know the exact threshold (75% LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →) and the exact price at which it will be reached — so you can always choose to stand a safe distance from it.
There is no single KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson →-wide threshold. It is set by whatever you posted as collateral: on KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → SOL the liquidation threshold is 75% for SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral and 90% for USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → collateral, while on AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson → ETH ETH collateral sits at roughly 83%. Figures checked 2026-09-05, and protocols change them themselves. Look up the threshold in the market you are actually using — KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → today runs not one but many markets, each with its own parameters.
The liquidation rule is fixed: LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → above 75%. Because you know the threshold in advance, you also know how much room you have before it. In practice you keep LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → well below that (30–40%), so a wide buffer stays between you and the limit — plenty of room to react.
The liquidation price formula
Liquidation price is the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price at which your LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → reaches 75%.
Formula
Liquidation price = (Debt × 1.05) / (SOL amount × 0.90 × 0.75)
The protocol applies neither of those two factors: KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → simply compares your debt against your collateral value and checks whether the 75% threshold has been crossed. In this course we inflate the debt by 5% and discount the collateral by 10% on purpose — that makes the formula return a slightly higher liquidation price than the real one, so it warns you earlier. It is a margin in your favor, not a protocol rule.
Calculating with our example
- SOL amount: 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →
- 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 →
- Price used in the example: $88
The example uses SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → = $88. At the time of writing (2026-09) the market is around $102 — the figures are illustrative, and the mechanism does not depend on the price level. Plug in your own numbers and you get your own liquidation price.
Liquidation price = (4,704 × 1.05) / (126 × 0.90 × 0.75)
= 4,939.20 / 85.05
≈ $58.1
What this means: if the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price drops from $88 to $58.10 (that's −34%), your position gets liquidated.
How liquidation happens, step by step
SOL price drops
A sharp decline hits the market. SOL reaches $58. Your LTV crosses 75%.
Bots spot the opportunity
Specialized programs (bots) constantly scan the blockchain looking for positions with an LTV that's too high. They earn a reward for executing the liquidation.
The smart contract sells your SOL
A bot submits the command. The smart contract sells part or all of your SOL to cover the debt. The sale happens at the market price.
A penalty is added
On top of covering the debt, a liquidation penalty is deducted from the assets being sold. Its size depends on the platform and the asset. It's an extra loss for you.
Aave [ETH]: ~5% (E-Mode ~1%). Kamino [SOL] liquidates in increments (soft liquidation) with a much lower penalty — from ~1% down to 0.1%. Check your platform's penalty BEFORE you borrow.
What's left is returned
If anything remains after all that — it's returned to you. But often what's left is very small.
How much can you lose? A worked example
Before liquidation
| Collateral | 126 SOL × $88 = $11,088 |
| Debt | 4,704 USDC |
| Room until danger | −34% |
At the moment of liquidation (SOL = $58)
| Collateral value | 126 SOL × $58 = $7,308 |
| Debt (weighted) | $4,939 |
| LTV | 75% — LIQUIDATION! |
After liquidation — Kamino SOL liquidates in slices
KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → does not sell the whole position in one go. A single liquidation covers up to 10% of the debt (the close factor), and the penalty is dynamic — from 0.1% up to 10% of the amount covered (in practice near the lower end; this example uses ~1%). The position stays open afterwards, and you can still rescue it.
| Value | |
|---|---|
| Debt covered in one liquidation (10%) | ~$470 |
| SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → sold (at $58) | ~8.1 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → |
| Penalty (~1% of the amount covered) | ~$5 (~0.1 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →) |
| SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → remaining | ~117.8 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → |
| Debt remaining | ~$4,234 |
| New LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → after the partial liquidation | ~72% — the position is still open |
Notice where the money actually goes. Your equity (collateral − debt) was $6,384 at $88 and is $2,604 at $58. Almost all of that gap comes from the price drop, not from the liquidation itself: the KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → soft-liquidation penalty in this example is only about $5. But the penalty is not the worst part — liquidation sells your SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → right at the bottom, so that slice no longer participates in any later recovery. And if the price keeps falling, liquidations repeat one after another. That is exactly why we keep LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → low and have a plan.
In June 2026 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → fell from about $81 to about $62.50. During that wave KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → processed 48,905 partial liquidations, with a median of 25% of a position's collateral and an average liquidation bonus of 0.074% of position size; the protocol took on no bad debt. Earlier, on 2026-02-05/06, SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → dropped 18% in two days and KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → recorded 55,649 liquidations worth $19.4M. This is not a rare event — it is a market state that recurs every few months.
ETH On AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson →'s ETH market the liquidation penalty in normal mode is ~5% (E-ModeE-ModeAave's efficiency mode — a higher LTV for assets in the same category.Read the lesson → ~1%), and a larger share of the debt can be covered at once. The same LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → slip costs considerably more on the EthereumEthereumA blockchain with smart contracts. We use Aave (lending) and Uniswap (LP) on it.Read the lesson → side than a KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → soft liquidation. Always check the threshold and the penalty on the platform you actually use.
What determines how fast liquidation happens?
| What's happening | Fast/painful | Slow/gentler |
|---|---|---|
| Speed of the price drop | Sudden crash within minutes | Slow decline over a week |
| Network load | Congested (fees spike temporarily) | Normal |
| Network availability | Outage — you cannot take ANY action | Network running normally |
| How many bots are watching | Many — liquidates fast | Few — you may have time to react |
| Your LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → buffer | Small (50%+) — immediate | Large (30%) — you have time |
On 2026-08-12 a routing (BGP) error at a single hosting provider knocked roughly 29% of staked SOL off the SolanaSolanaA fast blockchain (under 1s, gas under $0.01). Home to the Kamino, Orca and Meteora ecosystem.Read the lesson → network — close to the 33% line at which block finality is lost. For you that means a window in which you physically cannot top up collateral or repay debt.
Two practical conclusions:
- Size your buffer so you survive at least 30 minutes of being unable to act at all.
- Set a price alert, not only an LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → alert — a price alert still works when the network or the protocol's interface does not.
SOL On SolanaSolanaA fast blockchain (under 1s, gas under $0.01). Home to the Kamino, Orca and Meteora ecosystem.Read the lesson →, liquidations happen within seconds (blocks every ~0.4s).
ETH On EthereumEthereumA blockchain with smart contracts. We use Aave (lending) and Uniswap (LP) on it.Read the lesson →, it can take a few minutes — and during a crisis, network fees spike temporarily because everyone is acting at once.
How to avoid liquidation — a 4-level plan
Never wait until things get bad. Have a plan ready for every situation:
Level 1 — LTV > 40% (Warning)
- Start checking every few hours
- Have USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → ready to repay debt
Level 2 — LTV > 50% (Danger)
- Repay part of the debt (20–30%)
- Or add more SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →/ETH as collateral
Level 3 — LTV > 58% (Critical)
- Urgently repay debt from every available source
- Close other positions and use the funds for debt repayment
Level 4 — LTV > 62% (Emergency) — this is a DELIBERATELY early trigger, not the technical one: with SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → liquidates at 75%. You act sooner so you still have time.
- Repay the ENTIRE debt. This is no longer optimization — it's damage control.
Note: these levels are recalculated from the real 75% threshold. The 45/55/65/68 ladder used earlier in this course was derived from an inflated 83% threshold and would leave you far too little time to react.
Our strategy's protection measures
Options protection (insurance)
DeribitThe LP position as a helper
Orca- LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → position in the range: $64–$88
- As the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price falls, the LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → "buys" SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → with your USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →
- That SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → can be added to your collateral
Action plan by scenario
| SOL price change | What to do |
|---|---|
| −20% ($70) | Sell the options, close the LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson →, start over |
| −34% ($58.10) | DANGER — you should have already acted before this point |
| +15–20% | RollRollRolling an option — closing the old one and opening a new one with a later expiry.Read the lesson → the insurance upward |
| +100% ($176) | SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → gets sold through the option — a good outcome! |
LTV table — how it shifts with the price
| SOL price | Change | Collateral value weighted (×0.90) | LTV (weighted) | Status |
|---|---|---|---|---|
| $120 | +36% | $13,608 | 36.3% | Calm zone |
| $100 | +14% | $11,340 | 43.6% | Level 1 — warning |
| $88 | 0% | $9,979 | 49.5% | Level 1 — check daily |
| $80 | −9% | $9,072 | 54.4% | Level 2 — danger |
| $70 | −20% | $7,938 | 62.2% | Level 4 — emergency |
| $65 | −26% | $7,371 | 67.0% | Repay the entire debt |
| $61 | −31% | $6,917 | 71.4% | LiquidationLiquidationWhen LTV exceeds the threshold and the protocol automatically sells your collateral to cover the debt.Read the lesson → is very close |
| $58 | −34% | $6,577 | 75.1% | LIQUIDATION |
Glossary
| Term | What it means in plain terms |
|---|---|
| Liquidation | The system automatically sells your assets because the debt is too large |
| Liquidation price | The SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price at which liquidation begins |
| Liquidation penalty | An extra fee (depends on the platform: ~0.1–10%) you lose during liquidation |
| Liquidator | The bot that executes liquidations and earns a reward |
| Crisis plan | A pre-prepared action plan for every LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → zone |
| Buffer | How much "cushion" you have left before liquidation |
Summary
- LiquidationLiquidationWhen LTV exceeds the threshold and the protocol automatically sells your collateral to cover the debt.Read the lesson → happens automatically when LTV > 75% (KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson →, SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral) — following a fixed, known-in-advance rule.
- The threshold belongs to the COLLATERAL: KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → — 75%, KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → — 90%, AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson → ETH — ~83%.
- LiquidationLiquidationWhen LTV exceeds the threshold and the protocol automatically sells your collateral to cover the debt.Read the lesson → price:
(Debt × 1.05) / (Amount × 0.90 × 0.75)— you calculate it BEFORE you borrow. The 1.05 and 0.90 are the course's safety margin, not protocol factors. - The penalty depends on the platform (from ~0.1% in KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson →'s soft liquidation up to ~10%) — so it's worth never touching the threshold.
- With 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → and $4,704 debt — liquidation sits at $58.10 (−34% from the example price of $88).
- The main tool: prevention. Have a plan for every level.
- 30% LTV = the largest safety buffer you control yourself.
The liquidation price is the single most important number you need to know BEFORE you borrow. This task takes about 10 minutes, and you'll learn to calculate it yourself.
This whole task is just calculations on paper or in a calculator. No real borrowing, no wallet connection.
This is learning, not investing — use only small amounts you treat as tuition.
You just calculated your own liquidation price and a 4-level plan — that's how people who use DeFi for years, not days, operate.