Kamino's First Stress Test Report (November 2022)

Note: This article is not financial advice. Kamino Finance does not endorse any tokens or platforms mentioned in this article.

Overview:

• Kamino's smart contracts passed their first major stress test.
• Updates have included oracle upgrades and deprecating soBTC.

Kamino Finance was barely two months old when it experienced its first major stress test. The news surrounding FTX’s insolvency and the market volatility that ensued created a perfect storm of things going wrong, but Kamino made it through a trial by fire relatively unscathed.

What Happened During the FTX Bankruptcy Perfect Storm

The market reacted in several stages to the news about FTX and Alameda, and extreme volatility heated up the charts for days. Due to this black swan event, Pyth oracles that relied on prices queried from FTX US and other sources that were directly affected by volatility began failing.

For example, oracle price feeds for stSOL and mSOL were showing that these tokens were valued at around $38, since the liquidity was incredibly thin on FTX US. On the other hand, stSOL and mSOL were actually valued at $14 on-chain, where the price really matters for establishing shares in Kamino’s vaults.

For soBTC, the Pyth oracles were querying several exchanges that delivered prices closely aligned with those users may find on CoinGecko or CoinMarketCap. In truth, soBTC could not be bridged to the exchanges quoted, and Solana’s on-chain liquidity for soBTC had pushed the tokens price to around 10x lower than other prices reported for BTC in general.

Why Does Kamino Need Oracles?

When kTokens are minted, Kamino needs to know the price of deposited assets in the liquidity pool relative to the price of the rest of the market. This ensures that kTokens are not issued if a pool is somehow being manipulated on a DEX.  

If there is a discrepancy between the pool price and the market, the deposit is blocked. Kamino does this to protect existing users from other bad actors trying to claim more of the pool for themselves to the detriment of the rest of the users.

As a result, when it became apparent that oracles were querying bad prices, Kamino paused deposits and raised withdrawal caps on November 10. Users were able to make withdrawals, but additional shares were not issued for those who wanted to enter vaults.

Additionally, Kamino vault smart contracts rebalance positions within optimal ranges for each strategy. Since conditions were not met to rebalance positions during volatility, several vaults fell out of range and were unable to be rebalanced due to persisting Oracle issues.

Moving Forward: Getting Kamino Up and Running

Throughout the worst of this stress test, Kamino’s main problem was receiving stale and inaccurate price feeds from oracles. Finding ways to improve the oracle situation and rebalancing through all market conditions has become a priority for strengthening the protocol’s ability to operate despite adverse conditions.

Kamino strives to provide one of the best user experiences in Solana DeFi. Taking what has been learned from Kamino’s first stress test will help make the platform and community stronger than ever as the protocol continues to build Solana’s #1 liquidity destination.