How a Solend Whale With a $108M Loan Nearly Crashed the Solana Network

Solend, a decentralized lending protocol on the Solana network, has narrowly avoided having 95% of the SOL deposits in its lending pool liquidated.

At the centre of the controversy is a big account holder, recognized as a whale, with an outsized presence on the lending protocol and liable for the broad greater part of the SOL coins inside of it. The account experienced an excellent financial loan of $108 million worthy of of US Greenback Coin (USDC) and Tether (USDT), collateralized in SOL, the native cryptocurrency of the Solana network. The bank loan risked staying liquidated as the rate of SOL tanked to as lower as $27 on Wednesday and Saturday past week.

Experienced the cost of SOL continued to drop, and the $21 million in SOL collateralizing the personal loan gone into liquidation, Solend would have been left with just about no SOL. The project’s co-founder suggested that the hurry to get up that much SOL for inexpensive could have crashed the $2.6 billion Solana network.

Early on Tuesday, the protocol announced that the whale borrower had moved $25 million value of USDC credit card debt to Mango Marketplaces, a further Solana-primarily based lending protocol, thereby alleviating Solend of some of the burden and cutting down the protocol’s hazard. 

The overall price locked in the Solend protocol topped out at $1.4 billion at the get started of April, was slash in 50 percent, to $725 million, all through the collapse of Terra in Might and has been on a quick decrease about the previous 7 days. 

As of Tuesday afternoon, there was $247 million really worth of assets locked in the protocol and a further $171 million in excellent financial loans.

That liquidation would have been disastrous for Solend mainly because, with prices lagging, the sector would have struggled to take up the $21 million truly worth of SOL (or 20% of the collateral) that would have been automatically liquidated. The lending protocol would have been at risk of getting rid of almost its complete SOL lending pool at very seriously lower costs.

And the scramble by liquidators to obtain up the $21 million well worth of SOL for hearth sale charges would have put the Solana community as a result of its paces, wrote Solend’s pseudonymous co-founder Rooter.

“This could induce chaos, placing pressure on the Solana network,” they wrote in the web site publish. “Liquidators would be in particular energetic and spamming the liquidate purpose, which has been known to be a aspect causing Solana to go down in the previous.” 

Possessing confident the borrower to move some of their credit card debt to yet another protocol, Solend managed to cut down some of its exposure, but did not take out it completely. The borrower nevertheless owes $84 million to the protocol. 

The community has taken motion to mitigate that threat, or at least avoid it from happening once again. 

Previously currently, the Solend neighborhood voted to overwhelmingly approve a proposal that would impose a $50 million borrowing limit per account and regulate the sensible contract (the laptop or computer code that governs the lending protocol) so that it will temporarily liquidate 1%, not 20%, of deposits on undercollateralized financial loans.

The DeFi lending protocol, its identify a portmanteau of the text “Solana” and “lend,” commenced hoping to make contact with the borrower last week when it appeared like the 5.7 million SOL deposit collateralizing a $108 million stablecoin financial loan (US Dollar Coin and Tether), could be liquidated if the selling price of SOL dropped to $22.30.

Rooter, the co-founder, even released a proposal, labeled “SLND1,” to just take regulate of the account so that the collateral could be liquidated in an arranged way that wouldn’t clog (and perhaps crash) the Solana network. But soon after voting in guidance of that system, the community overturned it.

“We’ve been listening to your criticisms about SLND1 and the way in which it was done,” the Solend team wrote on the proposal to invalidate the vote right after getting opinions that 24 hours experienced not been more than enough time for users to forged their votes.

At the time, markets were being reeling from information that crypto loan company Celsius had frozen withdrawals to reduce a lender run and $3 billion hedge fund 3 Arrows Capital was negotiating with creditors to retain alone solvent. 

Solend operates the very same as a lot of other loan providers in DeFi, which is a time period utilised for non-custodial apps that allow users to trade, borrow and loan crypto belongings with out any 3rd-get together intermediaries, these types of as banking institutions. On Solend, buyers deposit collateral—currently 47 diverse coins and tokens across 18 liquidity pools—and borrow crypto property value up to 75% of their collateral. 

Utilizing crypto to safe loans on any blockchain has been primarily risky in the turbulent sector. In May well, Lido took to Twitter to warn borrowers that the Ethereum they experienced deposited to borrow Lido Staked Ethereum (stETH) may possibly be liquidated. 

A related trouble reared its head past 7 days when a massive borrower, at the time thought to be A few Arrows Capital, tried out to stave off liquidation of $300 million truly worth of financial loans from DeFi creditors Aave and Compound.