The Solana network was nearly destroyed by a Solend whale with a loan of $108 million.

A Solana whale came close to draining a pool of liquidity, which would have created huge repercussions. Solend, a decentralized lending protocol based on the Solana network, closely escaped by liquidating 95% SOL deposits from your loan pool. A large account holder, known as a whale, is at the heart of the problem, with a [...]

The Solana network was nearly destroyed by a Solend whale with a loan of $108 million.

A Solana whale came close to draining a pool of liquidity, which would have created huge repercussions.

Solend, a decentralized lending protocol based on the Solana network, closely escaped by liquidating 95% SOL deposits from your loan pool.

A large account holder, known as a whale, is at the heart of the problem, with a huge presence in the lending protocol and control over the vast majority of the SOL coins it contains.

The account had a loan of $108 million in US dollar currency (USDC) and Tether (USDT) that was collateralized in SOL, the native cryptocurrency of the Solana network. As the SOL price plummeted to $27 on Wednesday and Saturday of last week, the loan was at risk of being liquidated.

Solend would have been almost out of SOL if the price of SOL had kept falling and the $21 million in SOL that guaranteed the loan had gone into liquidation. The rush to buy so much SOL for so little money, according to the project’s co-founder, may have caused the $2.6 billion Solana network to crumble.

The protocol reported early Tuesday that the whale borrower has transferred $25 million in USDC debt to Mango Markets, another loan protocol based on Solana, relieving Solend of some of the weight and reducing the risk of the protocol.

The total value locked in the Solend protocol peaked at $1.4 billion in early April, dropped to $725 million after the Terra crash in May, and has been falling rapidly in recent weeks.

There was $247 million in assets locked in the protocol as of Tuesday afternoon, with another $171 million in outstanding debt.

The Solana network was nearly destroyed by a Solend whale with a loan of $108 million.

That liquidation would have been catastrophic for Solend because, with prices behind, the market would not have been able to absorb the $21 million in SOL that would have been immediately liquidated (or 20% of the collateral). The loan protocol would have been in danger of losing almost all of his SOL pool of loans at extremely low rates.

Solend’s pseudonymous co-founder, Rooter, said the liquidators’ rush to buy the $21 million SOL at clearance prices would have pushed the Solana network through their paces.

“This could cause chaos, putting a strain on Solana’s network. Liquidators would be especially active in spamming the liquidation function, which is known to be a factor in Solana’s downfall in the past.”

Solend was able to lessen some of its exposure by persuading the borrower to move some of its debt to a different protocol, but not entirely. The protocol still owes the borrower $84 million.

the community has taken steps to minimize Or at least prevent it from happening again.

The Solend community today decisively approved a proposal that would set a loan limit of $50 million per account and change the smart contract (the computer code that oversees the loan protocol) to temporarily liquidate 1% of deposits for unsecured loansinstead of 20%.

When it seemed that the 5.7 million SOL deposit guaranteeing a stablecoin loan of $108 million (US Dollar Coin and Tether) could be liquidated if the price of SOL dropped to $22.30, the DeFi lending protocol, whose name is a portmanteau of the words “Solana” and “lend”, they began trying to contact the borrower last week.

The Solana network was nearly destroyed by a Solend whale with a loan of $108 million.

Rooter, the co-founder, even proposed taking control of the account, dubbed “SLND1,” so that collateral could be settled in an orderly manner that wouldn’t bog down (and possibly crash) Solana’s network. The community, howeverhe rescinded the idea after voting in favour.

After receiving criticism that 24 hours was not enough time for members to vote, Solend’s team wrote about the proposal to override the vote:

“We have been listening to your criticism of SLND1 and the way it was carried out,”

Markets were already reeling from news that crypto lender Celsius had halted withdrawals to prevent a bank run and that $3 billion Three Arrows hedge fund Capital was in talks with creditors to stay afloat.

Solend works similarly to many other DeFi lenders, which are noncustodial applications that allow users to trade, borrow, and lend crypto assets without the use of third-party intermediaries like banks. Users deposit collateral, currently 47 different coins and tokens distributed in 18 liquidity pools— and borrow crypto assets worth up to 75% of their collateral on Solend.

In this volatile market, using cryptocurrencies to secure loans on any blockchain has been extremely dangerous. Lido warned borrowers on Twitter in May that the Ethereum they had placed to borrow Lido Staked Ethereum (stETH) could be liquidated.

A similar issue arose last week when a major borrower, believed at the time to be Three Arrows Capital, attempted to prevent the liquidation of $300 million in loans from DeFi lenders Aave and Compound.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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source: news.coincu.com