Solana DeFi Lending Protocol

A production-grade Solana DeFi lending protocol clone inspired by Kamino Finance's K-Lend, built with Anchor 0.30+ and following February 2026 best practices.

📋 Table of Contents

• Overview
• Features
• Architecture
• Interest Rate Model
• Liquidation Mechanics
• Installation
• Building & Testing
• Deployment
• Contact

🎯 Overview

This project implements a complete DeFi lending protocol for Solana, similar to Kamino Finance's K-Lend. It enables users to:

• Supply assets to earn interest via yield-bearing tokens
• Borrow assets against collateral with dynamic interest rates
• Liquidate unhealthy positions at a discount
• Create isolated markets with custom parameters (LTV, liquidation threshold, oracle)
• Automate yield through vault strategies

Key Characteristics

• Modular Markets: Each asset has its own isolated lending market with configurable parameters
• Dynamic Interest Rates: Utilization-based rates that adjust automatically
• Yield-Bearing Tokens: Supply tokens accrue interest automatically
• Health Factor: Real-time collateralization ratio monitoring
• Permissionless Liquidation: Anyone can liquidate unhealthy positions
• Vault Strategies: Automated yield optimization across multiple markets

✨ Features

Core Functionality

1. Market Creation

   • Create isolated lending markets for any SPL token
   • Configurable LTV ratios (up to 80%)
   • Custom liquidation thresholds (85-90%)
   • Oracle integration (Pyth or custom)

2. Supply & Earn

   • Supply assets to markets
   • Receive yield-bearing tokens (supply tokens)
   • Automatic interest accrual
   • Withdraw anytime (subject to health factor)

3. Borrow Against Collateral

   • Borrow up to LTV limit (e.g., 75% of collateral value)
   • Dynamic interest rates based on utilization
   • Health factor monitoring
   • Repay anytime to reduce debt

4. Liquidation

   • Permissionless liquidation of unhealthy positions
   • Liquidation bonus (5% discount) for liquidators
   • Seize collateral at favorable rates
   • Protects protocol solvency

5. Vault Strategies

   • Conservative: Low risk, stable yields
   • Balanced: Moderate risk/reward
   • Aggressive: Higher risk, higher yields
   • Automatic rebalancing across markets

Security Features

• ✅ Anchor framework best practices
• ✅ PDA-based account management
• ✅ Health factor checks on all operations
• ✅ Oracle staleness validation
• ✅ Math overflow protection
• ✅ Reentrancy protection via Anchor's account model
• ✅ Custom error types for clear failure cases

🏗️ Architecture

Program Structure

solana-defi-lending-protocol/
├── programs/
│   └── solana-defi-lending-protocol/
│       └── src/
│           ├── lib.rs              # Program entry point
│           ├── state.rs            # Account structs
│           ├── errors.rs           # Error definitions
│           ├── constants.rs        # Protocol constants
│           ├── math.rs             # Interest & health calculations
│           └── instructions/
│               ├── mod.rs
│               ├── initialize.rs   # Initialize protocol
│               ├── market.rs        # Create markets
│               ├── supply.rs        # Supply assets
│               ├── borrow.rs        # Borrow assets
│               ├── repay.rs         # Repay debt
│               ├── withdraw.rs      # Withdraw supply
│               ├── liquidate.rs     # Liquidate positions
│               └── vault.rs         # Vault operations
└── tests/
    └── solana-defi-lending-protocol.ts

Account Structure

GlobalConfig

• PDA: [b"global_config"]
• Fields:
  • authority: Protocol authority
  • treasury: Treasury PDA for fees
  • protocol_fee_bps: Protocol fee (5% = 500 bps)
  • market_count: Total markets created
  • treasury_bump: Treasury PDA bump

Market

• PDA: [b"market", asset_mint]
• Fields:
  • market_id: Unique market identifier
  • asset_mint: Underlying asset mint
  • supply_mint: Yield-bearing token mint
  • reserve_vault: Vault holding supplied assets
  • oracle: Price oracle account
  • ltv_bps: Loan-to-value ratio (e.g., 7500 = 75%)
  • liquidation_threshold_bps: Liquidation threshold (e.g., 8500 = 85%)
  • total_supplied: Total assets supplied (with interest)
  • total_borrowed: Total assets borrowed (with interest)
  • total_supply_tokens: Total supply tokens minted
  • cumulative_borrow_rate: For interest accrual
  • cumulative_supply_rate: For interest accrual
  • last_accrual_timestamp: Last interest accrual time

BorrowPosition

• PDA: [b"borrow_position", user, market]
• Fields:
  • user: Borrower address
  • market: Market address
  • borrowed_amount: Principal borrowed
  • cumulative_borrow_rate_snapshot: Rate when borrowed
  • created_at: Position creation time
  • last_updated: Last update time

Vault

• PDA: [b"vault", owner]
• Fields:
  • owner: Vault owner
  • strategy: Strategy type (0=Conservative, 1=Balanced, 2=Aggressive)
  • total_assets: Assets under management
  • allocations: Market allocation percentages
  • last_rebalance: Last rebalance time
  • rebalance_threshold_bps: Rebalance trigger threshold

Instruction Flow

1. Initialize Protocol
   └─> Creates GlobalConfig and Treasury PDAs

2. Create Market
   └─> Creates Market account with config
   └─> Sets up reserve vault and supply mint

3. Supply Assets
   └─> Transfer assets to reserve vault
   └─> Mint supply tokens to user
   └─> Update total_supplied

4. Borrow Assets
   └─> Check health factor
   └─> Transfer assets from reserve
   └─> Create/update borrow position
   └─> Update total_borrowed

5. Repay Debt
   └─> Transfer assets to reserve
   └─> Update borrow position
   └─> Update total_borrowed

6. Withdraw Supply
   └─> Check health factor
   └─> Burn supply tokens
   └─> Transfer assets from reserve
   └─> Update total_supplied

7. Liquidate
   └─> Verify health factor < threshold
   └─> Repay debt at discount
   └─> Seize collateral with bonus
   └─> Update both markets

📊 Interest Rate Model

Utilization-Based Rates

The protocol uses a piecewise linear interest rate model based on utilization:

Utilization = Total Borrowed / Total Supplied

Borrow Rate Calculation

Below Optimal Utilization (≤80%):

borrow_rate = base_rate + slope1 * (utilization / optimal_utilization)

Above Optimal Utilization (>80%):

borrow_rate = base_rate + slope1 + slope2 * ((utilization - optimal) / (1 - optimal))

Supply Rate Calculation

supply_rate = borrow_rate * utilization * (1 - protocol_fee)

Rate Parameters

• Base Rate: ~2% APY (634,195,839 per second)
• Slope 1: ~10% APY per 10% utilization (below optimal)
• Slope 2: ~100% APY per 10% utilization (above optimal)
• Optimal Utilization: 80%
• Protocol Fee: 5% of interest

Interest Accrual

Interest accrues continuously using compound interest:

new_amount = old_amount * (1 + rate_per_second) ^ seconds_elapsed

For on-chain efficiency, simplified to:

new_amount = old_amount * (1 + rate * seconds / scale)

💰 Liquidation Mechanics

Health Factor

Health factor determines if a position can be liquidated:

Health Factor = (Collateral Value * Liquidation Threshold) / Total Borrowed Value

• Health Factor > 1.0: Position is safe
• Health Factor < 1.0: Position can be liquidated

Liquidation Process

1. Detection: Health factor drops below threshold (1.0)
2. Liquidation: Anyone can repay debt and seize collateral
3. Bonus: Liquidator receives 5% discount on seized collateral
4. Protection: Protocol remains solvent

Liquidation Formula

collateral_seized = debt_repaid * (1 + liquidation_bonus) * (collateral_price / borrow_price)

Where:

• liquidation_bonus = 5% (500 basis points)
• Prices from oracles

Example

• User borrows 100 USDC against 150 SOL collateral
• SOL price drops → Health factor < 1.0
• Liquidator repays 100 USDC
• Receives ~105 USDC worth of SOL (5% bonus)

🚀 Installation

Prerequisites

• Rust 1.70+
• Solana CLI 1.18+
• Anchor CLI 0.30+
• Node.js 18+ and Yarn/npm

Setup

1. Clone the repository

   git clone <repository-url>
   cd Solana-DeFi-Lending-Protocol

2. Install Anchor

   cargo install --git https://github.com/coral-xyz/anchor avm --locked --force
   avm install latest
   avm use latest

3. Install dependencies

   anchor build
   cd tests && yarn install

🔨 Building & Testing

Build the Program

anchor build

This will:

• Compile the Rust program
• Generate the IDL
• Create the program binary

Run Tests

anchor test

Or run tests with verbose output:

anchor test --skip-local-validator

Test on Localnet

1. Start local validator

   solana-test-validator

2. Deploy program

   anchor deploy

3. Run tests

   anchor test --skip-local-validator

Test Coverage

The test suite includes:

• ✅ Protocol initialization
• ✅ Market creation
• ✅ Supply operations
• ✅ Borrow operations
• ✅ Repay operations
• ✅ Withdraw operations
• ✅ Liquidation scenarios
• ✅ Interest accrual over time
• ✅ Health factor calculations

🌐 Deployment

Devnet Deployment

1. Set Solana CLI to devnet

   solana config set --url devnet

2. Airdrop SOL (if needed)

   solana airdrop 2 <your-wallet-address>

3. Update program ID

   • Generate new keypair: solana-keygen new -o target/deploy/solana_defi_lending_protocol-keypair.json
   • Update declare_id! in lib.rs
   • Update Anchor.toml with new program ID

4. Build and deploy

   anchor build
   anchor deploy

Mainnet Deployment

⚠️ WARNING: Only deploy to mainnet after thorough auditing and testing.

1. Set Solana CLI to mainnet

   solana config set --url mainnet-beta

2. Build for mainnet

   anchor build

3. Deploy (requires sufficient SOL)

   anchor deploy

4. Verify deployment

   solana program show <program-id>

Post-Deployment

1. Initialize protocol

   • Call initialize instruction with protocol authority
   • Sets up GlobalConfig and Treasury PDAs

2. Create markets

   • Call create_market for each asset
   • Configure LTV, liquidation threshold, oracle

3. Verify setup

   • Check GlobalConfig account
   • Verify markets are created correctly
   • Test supply/borrow operations

📧 Contact

• Telegram: https://t.me/codiiman
• Twitter: https://x.com/codiiman_