Solend is a decentralized lending and borrowing protocol built on Solana (SOL) It is lauded for expanding the methods available for Solana (SOL) users to boost financial profits. Filling a large gap in the Solana (SOL) ecological system, Solend drew a staggering $100 Million in deposits in just over a 30 days post-launch.
100 percent utilization of funds
Like all Decentralized Finance pools, a danger scenario is 100 percent utilization of funds. 1 cannot take a loan if no assets remain in the pool. The issue is termed 100 percent utilization. Nonetheless, if borrowers keep repaying their loans or new supplies keep arriving, such a challenge may not arise.
Still another danger possibility is associated with liquidations. Nevertheless Solend offers overcollateralized loans, one cannot forget that the cryptocurrency market is volatile, with fluctuating investment values that could result in the liquidation of funds of an unsuspecting user. This makes it important for everyone to listen up to their loans and investments.
Large, single borrowers
Being a large lending pool, a key vulnerability of Solana (SOL) is the presence of a large, single borrower, was known a whale. Whales have an outsized presence in the protocol. This resulted in a June 2022 collapse involving a whale borrower.
A Solana (SOL) whale with $108 Million almost crashed the Solana (SOL) network in June 2022. The protocol barely avoided the liquidation of 95 percent of Solana (SOL) deposits in its lending pool. Let’s dig a bit deeper into how it all happened.
The whale had an outstanding loan of $108 Million worth of USD Coin (USDC) and Tether (USDT) (USDT), backed by collateral of $170 Million worth of SOL. Everything was fine while the price of Solana (SOL) was high, but when it tanked around June 15, the whale’s account was on the verge of the liquidation threshold. It can potentially have resulted in over $21 Million of Solana (SOL) getting dumped in a single shot, with severe repercussions in the market.
The project developers tried to contact the whale to no avail. They were forced to post on Twitter platform and Reddit, urging the whale to contact them, which spooked numerous other users who began to pull out their funds. The developers sooner or thereafter managed to contact the whale, who added more collateral.
Nonetheless, before the whale added the collateral, the developers — in their quest to control the damage — proposed emergency powers to control the account in the event of liquidation. This earned them bad press, as it was against the spirit of decentralization. The final measure was to establish a borrower ceiling of $50 million.
Future of the Solend
Solend has brought the power of Decentralized Finance to the Solana (SOL) network, offering users numerous opportunities that have the capacity to beef up their profits. Nevertheless the whale issue laid bare the vulnerability of the protocol, the silver lining was the developers’ capacity to handle things. Cryptocurrency is still a new industry where people are learning on the move. The successful handling of the whale issue to the satisfaction of most stakeholders raised the protocol’s credibility.
Furthermore, Solend brings a strong Decentralized Finance element to the Solana (SOL) ecological system. Vulnerabilities notwithstanding, the app is intriguing to tinker with, and as the loopholes get plugged, more users can potentially find it exciting.