👀 An easy bet on Solana

GM everyone. This is 2036.

Today, we’re going to do things a little differently.

You see, this cycle has been dominated mostly by:

• The Bitcoin ETFs driving new inflows

• Memecoin speculation (which, let’s also be honest, has been incredibly lucrative) 

But crypto used to be about building new technology that would change the world. 

That’s why many of us got into it.

Last cycle, we got DeFi, NFTs, DAOs.

But this cycle, the new, useful technology, hasn’t been talked about as much. 

And I want to change that. 

Going forward, I will occasionally shed light on useful protocols you can use in crypto to manage or make (a lot of) money—the ‘valuable tech.’ 

I’ll do this by writing a series of highly actionable deep dives on protocols that I use personally. 

Whenever possible, these overviews will be sponsored. I’m aware this presents obvious conflicts of interest.

The newsletter has grown enough that it would be straightforward for me to write for whoever writes the biggest check - remember Polkadot’s $450,000/month influencer budget? - but:

• I am incredibly fortunate and grateful that I get to do this work for a living

• I value your trust more than any short-term payment I can get

… which means I will continue to write about what I want to write about, the same way Private Investors get to invest in what I invest in.

The difference to regular newsletters is that these sponsored deep dives give me access to the teams working behind the protocols. You’ll see the good, the bad, and the ugly. 

Of course, I’m biased because I use these protocols. There will be more good than bad.

But more importantly, I want to explain how you can put it to work for yourself.

I can’t promise these will solve all of your money problems. But they’ll solve some of them.

Sometimes, protocols I cover might go nowhere, and sometimes, they’ll be the next hot thing. I don’t know. But I promise I’ll always:

• Write about protocols/projects that I would write about even if they didn’t pay me (don’t tell the projects that)

• Cover the specific elements of those protocols that I find useful (these won’t be your generic long-form essay on a specific thing)

• Give you my honest opinion at the time of writing based on all the information I have available. Sometimes, I’ll miss something, but I’ll always do my best.

Sounds good?

Alright, let’s get to the first one.

Now - imagine you have some money, and you want to save it, earn interest, or maybe get a loan to buy something big.

Usually, you'd go to a bank to do these things. 

However, decentralized finance (DeFi) lets you do similar things using blockchains without a traditional bank. 

In DeFi, people can lend, borrow, and earn interest on their tokens directly with each other through secure and transparent systems.

Unlike banks, DeFi platforms use ‘smart contracts’-- computer programs that automatically follow the rules everyone agrees on. They ensure that when certain conditions are met, things happen as planned without needing a person to manage them.

Think of this as a vending machine: ‘If I insert $2, then the machine ensures a Coca-Cola falls out’ 

DeFi matters because it unlocks a world of unlimited possibilities for your crypto. And there’s no bank to tell you what you can or cannot do.

Naturally, because it’s crypto, some DeFi opportunities are high-risk, and others are stupid. 

But if you look carefully (and that’s my job for you!), you can find opportunities that make a lot of sense.

That’s why I, like millions of people worldwide, use DeFi daily. 

For years, I used DeFi on Ethereum. But with the rise of Solana, DeFi has gotten:

• Safer

• Better 

• Faster

• Cheaper

… and most of my activity happens on Solana now. 

That’s why the first project I want to talk about is the DeFi project on Solana that rises above all others: Kamino.

Meet Kamino: The DeFi Powerhouse on Solana

Kamino Finance is the second-largest DeFi platform on Solana (the first is Jito, a staking-only protocol). It’s the Solana DeFi super-app, which secures 158,000 loans and over $2 billion.

Kamino is no small fish.They generate more revenue than Optimism and Arbitrum - the main chains helping to scale - Ethereum, and:

• Have $1.3 Billion Total Value Locked on the platform

• Are on track to generate $54M in interest fees for users and $12M in revenue 

• Have 420,000 active users

Their growth looks like a straight line up and to the right:

Naturally, as a result, interest fees paid out to users have skyrocketed over time, too:

Now, there’s a reason Kamino is dominating and is the most trusted DeFi product on Solana.

As of today, Kamino has some of the best:

• Products

• Yield opportunities

• Security 

… of any DeFi platform on Solana.

Now - DeFi on Solana is growing because it is quickly becoming one of the most used blockchains in the world. 

Solana is - among other things:

• Super fast

• Massively scalable

• Ultra cheap

… which, if you’ve ever used Ethereum, is a nice change.

So, a bet on Kamino is a bet on the continued growth of Solana.

Kamino offers the classic features you find in both banks and DeFi, like:

• Borrowing

• Lending

• Investing on leverage

But here’s where it gets interesting: Kamino is scaling its platform from $2 billion to $10 billion in assets, and to do that, it’s rolling out some banger features that are worth knowing about.

Today, I’ll run you through the BEST current features on Kamino today (that I use) and the upcoming ones you need to know about.

So, without further ado, here’s the actionable, no-fluff guide to Kamino.

Kamino's Coolest Current Features - And How to Use Them

To get started using Kamino, you will need a Solana-compatible wallet. I use Phantom, but you can use Backpack, Solflare, or whatever floats your boat.

Just download the browser extension, make sure there are some funds in it, and head over to https://app.kamino.finance/ to get started and connect your wallet.

Note: I recommend you bookmark this website and always access it via your bookmarks. Don’t google it, and don’t click any strange links randomly on the web. If in doubt, go to Twitter, search for Kamino Finance (here they are), and use the official links they provide.

Alright, let’s get straight into the features you can use right away.

Feature #1: Kamino’s Lending, Borrowing & Liquidity 🏦

Typically, in DeFi, you can:

• Lend crypto to others looking to borrow (with collateral they’ve deposited as a guarantee for your loan)

• Borrow crypto against collateral you’ve deposited (an asset-backed loan that gets liquidated automatically if the value of your collateral falls too much)

• Provide liquidity to traders who want to exchange cryptocurrencies and earn a small fee in return

Naturally, Kamino does all 3.

Lend

First, you can lend tokens to other investors looking to borrow and earn interest. The process is simple.

Just choose one of the 20+ assets that you want to deposit. Other users will then borrow these assets (backed by collateral) and pay you interest.

To lend, simply supply an asset in any of the markets and automatically accrue interest (up to approx. 7% on USDC).

Borrow

To borrow some crypto, you first deposit collateral. Currently, you can borrow over 15 different cryptocurrencies by first depositing collateral into the Kamino Platform.

The borrowing ratio you can do relative to the value of your collateral (Liquidation LTV) will vary depending on the assets. 

But borrowing makes a lot of sense if you don’t want to sell your tokens and need cash.

Simply:

• Deposit tokens (e.g. SOL)

• Borrow stablecoins (e.g. USDC) using your SOL as collateral.

And voila, you can now use that cash to either buy more crypto (more on this in a bit) or pay for things in real life.

Like the trader who deposited $35M of WIF to take out a $2.5M loan… to buy more WIF.

However, Kamino differs from other platforms in one important (good) way. 

On most other DeFi platforms, if the value of your collateral falls below your liquidation LTV, your entire loan is liquidated. 

But Kamino works with partial liquidations.

On Kamino, when your collateral falls below your liquidation LTV, just 20% of your position is unwinded. You also pay a small penalty fee (of 5% on the liquidation amount, not the total amount), which is tiny compared to other platforms.

This does not mean you lose 20% of your position. Instead, your position size is reduced by 20%. The actual penalty (i.e. the amount you lose) is much, much lower.

[You can find more details in this thread]

I think this makes Kamino a better place to borrow than any other place in DeFi today. That’s probably also why they have over $800 million in outstanding loans (against $2 billion of collateral).

But here’s where it gets interesting.

Decentralized exchanges work with liquidity pools - smart contracts that contain two different cryptocurrencies deposited by users in pairs.

Liquidity pools ensure that users can always trade between the two pairs, even if no one is on the other side of the trade.

For example, if you want to swap USDC for SOL but there is no current seller of SOL, the liquidity pool contains enough SOL to ensure you can trade your USDC for SOL.

But liquidity pools need users to deposit funds. So, to incentivize and reward them, liquidity pools pay users a small fee every time a transaction happens in the pool.

This is classic in DeFi - and results in liquidity pools offering interesting yields for those willing to supply their funds. 

Kamino connects to existing decentralized exchanges like Jupiter, Orca, Raydium, etc., to provide liquidity for traders there.

In exchange, Kamino offers some of the best yield opportunities on Solana today.

Right now, directly inside Kamino:

• You can earn 8.4% yield on your stablecoins (USDC and PYUSD)

• You can earn 7.5% yield on a pool of SOL and JitoSOL (SOL staked with Jito)

To participate in these liquidity pools, you’d typically deposit two different cryptocurrencies in equal dollar amounts.

But Kamino lets you deposit just one token and converts half of it to the other pair for you (without fees).

So, if you have SOL, JitoSol, or stablecoins on Solana lying around, this is an interesting opportunity.

But wait - there’s more.

Feature #2: Kamino Multiply

If you’re a regular reader of this newsletter, you’ve heard me talk about JLP before. 

JLP (Jupiter Liquidity Provider) is a liquidity pool set up by Jupiter (the premier Solana exchange) that traders borrow from when trading.

The liquidity pool contains:

• 40% SOL

• 26% USDC

• 10% USDT

• 10 % ETH

• 10% BTC

… and generates fees from perps trading on Jupiter.

You can buy JLP directly on Jupiter, and over the past year, JLP has essentially been up and to the right. 

But here’s where it gets interesting: Kamino offers leveraged exposure to JLP to the tune of 3X. 

This is part of their ‘Multiply’ product.

The product works by taking ou flash loans against specific collateral into JLP. Today, whereas JLP alone offers 38% APY, 3X JLP offers 110% APY on Kamino. 

So far, no one has ever been liquidated on Kamino by investing in JLP Multiply. 

To invest, you just have to deposit stablecoins - either USDC or PYUSD.

So, if you’re willing to take a little more risk than the traditional JLP, the JLP 3X vault on Kamino Multiply is worth keeping on your radar.

You can also deposit SOL into the JUPSOL 5X Multiply vault for a 20.6% APY.

Cool, right? But it gets even better.

Feature #3: Leverage trading

The next one is for all the degens out there.

Those who, despite being told not to leverage trade… do it anyway.

So, like a parent who buys cigarettes for their kids because they know the kids won’t quit anyway - I’ll give you the safer way I know to trade on leverage.

You see, the problem with leveraged trading today is:

• The insane fees you accumulate over time

• The harsh liquidations 

On Jupiter, you’ll end up paying approx. 44% per year to long SOL on 2-3X leverage.

This isn’t as straightforward to determine as you think, as they quote the price per hour (0.0043% per hour).

On Kamino, you can do this slightly differently with similar results but for a lot cheaper and with much softer liquidation conditions. 

Let’s see how it works.

To go long SOL on Kamino, here’s how you could do it: 

• Deposit SOL (for 4.55% yield)

• Borrow PYUSD (at 3.39%)

• Swap PYUSD for SOL on Jupiter

• Redeposit the new SOL back into Kamino

• Borrow PYUSD again

• Repeat

Right now, to borrow stablecoins on Kamino, you’ll pay:

• USDC: 7.68% APY

• PYUSD: 3.39% APY

So, if you borrow PYUSD to buy SOL, you’re paying 3.39%. 

But here’s where it gets interesting: you also earn a yield on your collateral.

In this case, you’re earning 4.55% on the borrowed SOL.

This means you're getting paid when you borrow PYUSD to buy SOL. 

In this scenario, you are longing SOL by borrowing PYUSD. If the SOL price goes up, your collateral becomes worth more, while your debt (a stablecoin) remains stable and increases only via the price you pay to borrow (3.39%).

[if this example seems complicated, Kamino is making this much easier to navigate in an upcoming upgrade]

Here’s an example with $200:

You borrow at a 50% LTV (so you get 2x leverage)

• Deposit $200 SOL for a 4.55% yield

• Borrow $100 PYUSD for 3.39%

So yearly, you earn: 4.55% * 200 = $9.1

While you pay: 3.39% * 100 = $3.39

And remember, if your LTV falls below 50%, you won’t be liquidated entirely.

When you get liquidated on Kamino, only 20% of your position is unwinded.

You also only pay a ~5% liquidation penalty on top of that 20% (so 20% * 5% = 1%).

In other words, you only lose 1% of your actual collateral each time you get liquidated on Kamino (and I happened to get liquidated once in a while during my dark degen days).

This is much better than traditional perps on platforms like Jupiter, where you can lose a huge chunk, if not your entire position when you are liquidated.

These features are just some of the things that you can do on Kamino today.

Now let’s look at some things we can expect to see shortly on Kamino…

Kamino’s Coolest Upcoming Features - And How to Use Them

Feature #1: Spot Leverage

Remember all the button-clicking you had to do in the previous section to get leverage on Kamino?

If you prefer things a little simpler, that’s exactly what Kamino is about to roll out. 

In its V2 Lending upgrade, Kamino will introduce spot leverage.

It packages everything from the previous section into one smooth interface. 

So stay tuned because it’ll be rolled out super soon. 

Feature #2: Vaults

To this day, if you want to maximize the yield you’re getting on your tokens, you have to constantly scour the different vaults - and move your funds around - to always make sure you’re in the highest-yielding vault.

Soon, you won’t need to do any of this.

Instead, Kamino will let you choose different risk profiles and do all the work for you of automatically spreading your funds across the highest-yielding vaults for your chosen profile.

Here are some examples of vaults Kamino could roll out:

• Risk-Adjusted: Maximize USDC yield, deploying only into markets with high-liquidity, low-volatility assets. 

• Yield Maximizer: Maximize USDC yield indiscriminately across all markets

• Thematic: Use a barbell portfolio and deploy 90% to low-risk yield opportunities and 10% to high-risk markets, or maximize SOL yield only, etc. 

It’s like a robo-advisor who constantly goes to the best-yielding opportunities.

All of this done for you.

Cool, right?

Feature #3: Improved risk infrastructure

I know, I know-- nobody wants to talk about risk.

But this is important. In fact, in DeFi, risk management is the most important thing. 

We wall want to earn 20% on our USDC until the platform we lend on blows up and our funds go to zero (uh… Luna, anyone?)

But, as part of their V2 Lending upgrade, Kamino is introducing a long series of new infrastructure upgrades that’ll make the whole platform not only safer, but also much more user-friendly for borrowers and lenders.

One of these is scam wick protection.

Have you ever seen the price of a token plunge rapidly and recover minutes (or seconds) later?

Unfortunately, this happens all too often due to temporary mispricings in the demand and supply of a token. 

And if you have a leveraged position on a token, you can get liquidated instantly, even if the token recovers 37 seconds later.

Kamino’s new scam wick protection will help identify scam wicks and eliminate them from the rules that cause liquidations so you can sleep a little more comfortably.

Kamino will also introduce automated profit-taking, stop losses, and limit orders on leveraged trading to help you manage risk automatically with pre-set parameters (when profit/loss hits X, sell/take profit).

Plus, Kamino will roll out overall better risk tooling, collaborations with external risk managers, risk dashboards and notifications, stress testing, and many more external audits, 

Kamino has a laundry list of upcoming upgrades. You can get a full overview of them here.

Ok, this is all good and fun - let’s talk about risks.

Kamino wants to remain the DeFi leader on Solana and the safest place for users to bring their funds.

To do this, they’re taking their internal risk infrastructure very seriously.

Kamino publishes all their platform’s data updated in real-time, on their risk management platform, which you can find here: https://risk.kamino.finance/

They also have measures in place to limit the risk of cascading defaults. For example, the utilization rate (rate of supplied tokens versus borrowed tokens) on SOL is capped at 90% to ensure that people can’t borrow more SOL than is available.

If more people than that borrowed SOL, interest rates would rapidly increase and many of Kamino’s own products that yield less than the new SOL interest rate would become unprofitable (an example of which you can read about here).

Does this mean it’s risk-free?

No, it’s not. This is crypto, and everything has risks. Participating in DeFi introduces additional layers of smart contract risks.

Plus, you may face impermanent loss in liquidity pools if the price between two tokens fluctuates too much.

But if Kamino becomes as established as Aave is on Ethereum, I think it is a risk that is worth taking at times.

That doesn’t mean you should YOLO all of your crypto funds into Kamino’s vaults tomorrow. Always proceed with caution and know that no protocol is 100% immune from blowing up, and there’s always the risk that you lose all of your funds. 

But if you believe in Solana and want to a) unlock some funds or b) boost your returns, then Kamino makes a lot of sense.

What about KMNO, Kamino’s token?

Right now, the Kamino token KMNO is mostly used for:

• Staking, which qualifies users for upcoming airdrops

• Speculation, as a leveraged bet on the growth of the Solana ecosystem

The Kamino team has made it clear that they will soon introduce a governance voting system whereby holders of KMNO can vote on the future direction of Kamino.

Plus, it wouldn’t be a surprise if, eventually, a fee mechanism (in the form of a fee switch) gets put in place whereby a part of Kamino’s revenue accrues directly with the token holders.

I hesitate to do a thorough valuation analysis of the KMNO token because I don’t believe that’s the goal here.

No one knows what the future holds, and in a raging bull market, comparables and reasonable valuation models are completely discarded. Instead, if Solana does well, people will bid on anything Solana-related to catch an extra pump.

A rising tide lifts all boats.

Kamino trades like a leveraged bet on Solana. If SOL does well, I expect KMO will do well too.

Final word

Kamino wants to become a $10 billion juggernaut, and I think it has a good shot at doing so.

Kamino has been successful in introducing incentives for users. A $500,000/week incentive campaign brought $180M of PYUSD inflows to Kamino.

In the future, these kinds of incentives can become infinite positive loops.

Revenue Growth → Incentives Increase → TVL Growth → Revenue Growth → Incentives Increase

Now - if you’re just betting on the token, there’s a risk another DeFi protocol will take the lead and outperform.

But if you’re interested in actual, great DeFi products, Kamino is worth keeping on your radar.

• 🎯 How does KMNO fit into a portfolio? How much is a reasonable allocation, if any? When is it time to take profits?

  • Get these answers (and many more) in Enter, Earn & Exit, my 2024 blueprint for investing in crypto— get $100 off using code ‘2024’.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.