Lending and borrowing
How money markets set rates, what LTV and liquidation really mean, and how to borrow without getting wrecked.
Lending markets are DeFi's banks without bankers. Lenders deposit assets into a pool. Borrowers take loans from that pool by posting collateral. Interest flows from borrowers to lenders, and code enforces the rules.
How rates are set
Rates float with utilization: the share of the pool that's borrowed. Low utilization means cheap borrowing and modest lending yields. As utilization climbs, both rise. Past a kink (usually 80 to 90%), rates jump sharply so lenders are rewarded for supplying more and borrowers are pushed to repay. That keeps enough liquidity for lenders to withdraw.
This is why a stablecoin yield can be 5% one week and 12% the next: demand to borrow changed.
Borrowing: the three numbers
LTV (loan-to-value) is how much you've borrowed versus your collateral's value. $400 borrowed against $1,000 of SOL is 40% LTV.
Max LTV is the most you can borrow against an asset, say 75% for SOL.
Liquidation threshold is the LTV at which you get liquidated, a bit above max LTV, say 80%.
When your LTV crosses the threshold, liquidators repay part of your debt and take some of your collateral at a discount. You keep the rest, minus a liquidation penalty. Many apps show this as a health factor: above 1 is safe; at 1, liquidation begins.
Correlated vs volatile pairs
Borrowing USDC against SOL is a volatile pair: if SOL drops 50% from 40% LTV, you're liquidated. Borrowing SOL against JitoSOL is correlated: both move together, so apps allow much higher LTVs. The risk shifts from price moves to depegs and borrow-rate spikes.
Where to lend and borrow
KaminoSolana's largest lending market
Jupiter LendHigh-efficiency money market by Jupiter
LoopscaleFixed-rate lending through an order book
SaveLending protocol, formerly Solend
- Kamino is the largest market, with isolated markets for RWAs and xStocks, curated Earn vaults and, since September 2026, fixed-rate borrowing.
- Jupiter Lend focuses on capital efficiency with high LTVs on correlated pairs.
- Loopscale matches lenders and borrowers at fixed rates and terms through an order book.
Rules that save money
- Borrow at half the max LTV or less.
- Set price alerts at the level that would take you to 70% of the threshold.
- Keep spare stablecoins in your wallet to repay fast.
- Remember borrow rates can spike; check positions weekly.
Key takeaways
- Lenders earn the interest borrowers pay; rates rise as more of the pool is borrowed.
- Borrowing requires overcollateralization: you always post more than you take.
- Cross the liquidation threshold and part of your collateral is sold, with a penalty.
- Keep a wide buffer and set alerts; prices move faster than you can react.
Check yourself
3 questions. Get them all right to mark this lesson complete.
Try it
Facts checked Oct 19, 2026. Educational content, not financial advice.
