Thursday, December 8, 2022

Solend’s Whale With $108M Loan Almost Crashed The Solana Network

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Solend’s whale with a $108 million loan almost crashed the Solana Network and nearly drained the liquditiy pool of Solana so let’s see how in our latest Solana news.

Solend is a decentralzied lending protocol on the Solana network and it managed to avoid 95% of the SOL deposits liquidated. At the center of the controversy is a large account holder known as a whale with the outsized presence of the protocol and responsible for the majority of the sOL coins within it. Solend’s whale had $108 million worth of USDC and USDT collateralized in sOL and the loan risked being liquidated with the price of SOL dropping hard.

If the price of SOL kept on dropping, the $21 million in SOL collateralizing the loan went into liquidation, Solend would have been left with no SOL tokens. The project’s co-founder suggested that the rush to purchase that much SOL for cheap could have crashed the $2.6 billion Solana network. The protocol announced that the whale borrower moved $25 million worth of USDC debt to Mango Markets and alleviated Solend of some of the burden and reduced the protocol’s risk. The total value locked in the Solen protocol hit $1.4 billion in April which was cut in half to $725 million after the Terra collapse. There was also $247 million worth of assets locked in the protocol and another $171 million in loans.

The liquidation could have been a disaster for Solen because with the prices lagging, the market could have struggled to absorb the $21 million SOL that would have gotten liquidated. The lending protocol would have been at risk of losing the entire SOL pool.

“This could cause chaos, putting strain on the Solana network. Liquidators would be especially active and spamming the liquidate function, which has been known to be a factor causing Solana to go down in the past.”

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Having convinced the borrower to move some of the debt to another pool, Solend managed to avoid a total mess. The community still has to take action to mitigate the risk or prevent it from happening again. The Solend community voted to approve the proposal that will impose a $50 million borrowing limit per account and adjust the smart contract so that it can liquidate 1% deposits on the undercollateralized loans. Solend works the same as most lenders in DEFI which means without any third-party intermediaries like banks.

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