What Is LST Multiply on Kamino Finance?

This article explains Multiply (https://app.kamino.finance/earn/multiply), offered by Kamino Finance, a DeFi platform on Solana.
Multiply also exists for JLP, but the explanation below is limited to LSTs (liquid staking tokens).
It is based on Kamino Finance's official docs at the time of writing. Please refer to them for the latest information.

Kamino Multiply is a leveraged lending feature offered by Kamino Finance.

It lets users apply compounding leverage to the yield-bearing assets such as LSTs they hold, without giving up liquidity.

After depositing the asset used as collateral, SOL is borrowed against that collateral value, and the borrowed SOL is converted back into the collateral asset and deposited again. Multiply automates this cycle.
(It is also called multiply, looping, or leveraged lending.)

Taking a 7.5x multiply on the picoSOL/SOL pair as an example, it builds a position that

• starts from 1 picoSOL,
• borrows SOL worth 6.5 picoSOL, and holds 7.5 picoSOL as collateral.

Kamino Multiply uses a mechanism called eMode (Elevation Mode). When the collateral asset and the borrowed asset are price-correlated, it allows a higher loan-to-value (LTV) ratio than usual.
For example, in the JitoSOL/SOL Multiply, the normal LTV is 75% (up to 4x leverage), but with eMode an LTV of 90% becomes possible, enabling up to 10x leverage.
This permits a larger borrow against the same collateral, so higher leverage can be built.

A flash loan is a DeFi technique for borrowing assets temporarily without collateral. Kamino Multiply uses flash loans in the following steps.

1. The user enters the initial collateral and the target leverage
2. The required amount of SOL is borrowed via a flash loan
3. The borrowed SOL is swapped into the LST (e.g. picoSOL)
4. The acquired LST is supplied as collateral
5. SOL is borrowed and the flash loan is repaid

The flash loan fee is 0.001%, and the borrow rate (Borrow APY) and swap slippage are reflected as the effective cost.

Traditionally, if an LST (liquid staking token) is valued at its market price (the price on a DEX), a large trade in thin liquidity could cause the LST to depeg significantly in the market.
Kamino uses the stake pool's internal data as the LST oracle to calculate a theoretical price.
Specifically:

**LST theoretical price = staked SOL / LST supply**

• The SOL balance in the stake pool grows every epoch (staking rewards)
• The total supply of the LST (e.g. picoSOL) stays stable
• Therefore the LST's theoretical price rises with each epoch

With this approach, even if the LST depegs in the market, no liquidation is triggered.
Because it references the theoretical price rather than the market price, the risk of erroneous liquidation from thin liquidity or large trades is eliminated.

📌 Assumptions

🔢 Position composition

💰 Annual return calculation

✅ Conclusion

1. Amplified returns through leverage

• Combining flash loans and eMode multiplies the collateral value several times over, compounding staking rewards and liquidity provision fees.
• When SOL and LST prices are stable or rising, the leverage effect can deliver returns beyond ordinary lending.

2. No depeg liquidation risk

• Because the LST oracle references the stake pool's theoretical price, unnecessary liquidations from temporary market deviations (depegs) are prevented.

3. Earn staking rewards while keeping liquidity

• While picoSOL or other LSTs are used as collateral, you keep receiving the rewards (staking APY) from the underlying stake pool.
• Unlike ordinary staking, the big advantage is that you can run leverage while your collateral is locked.

1. Interest rate risk

• The Borrow APY fluctuates with supply and demand and with rate indicators. When rates rise, borrowing costs increase and the Net APY can fall rapidly.
• Especially at high leverage, rising rates can turn the total return negative.

2. Liquidity risk

• During large liquidations or market panic, sell orders surge for the LSTs and assets used as collateral, causing significant slippage.
• There is a risk that collateral is liquidated at worse prices than expected, reducing the amount recovered.

3. Liquidation risk

• Multiply Vaults hold debt positions, and if the LTV ratio exceeds the liquidation threshold, the position may be liquidated.
  
• In SOL Multiply, this can happen only when negative carry (the borrow rate exceeding the LST yield) persists for an extended period.
  

4. Depeg risk

• Multiply has no depeg risk.

5. Automatic deleveraging

• Deleveraging is a mechanism by which, when the risk of a specific asset across the Kamino protocol becomes too high, the system forcibly unwinds debt and collateral in stages. This maintains the health of the protocol.
• Notification timing: a margin call period is announced on Kamino's official social channels and elsewhere, after which the deleveraging process begins. Users need to check the notice in advance and decide whether to restore their LTV manually or accept automatic deleveraging.

6. Socialized losses

• If bad debt arises in K-Lend, the loss is allocated pro rata across all borrow positions within the same protocol.
• As a result, rather than a loss confined to a specific position, the whole system is affected to some degree, and the liquidation threshold may be lowered.

7. Smart contract risk

• If the smart contracts of the LST issuer (Sanctum, Marinade, etc.) have vulnerabilities, the LST itself could be frozen or hacked.
• Currently, LSTs on Solana use the SPL (Solana Program Library), Sanctum (multi, single, INF) and Marinade smart contracts.
• Check each project's page for audit information
  • Solana Program Library
  • Sanctum LST
  • Sanctum Infinity
  • Marinade