How a sunbathing whale with a $ 108 million loan nearly crashed the Solana network

Solend, en decentralized lending protocol on Solana network, has barely avoided having 95% of the SOL deposits in the lending pool settled.

At the heart of the controversy is a large account holder, known as a whale, with an oversized presence on the lending protocol and responsible for the vast majority of SOL coins in it. The account had an outstanding loan of $ 108 million in US Dollar Coin (USDC) and Tether (USDT), with security in SOL, the original cryptocurrency of the Solana network. The loan risked being liquidated when the price of SOL fell to as low as $ 27 on Wednesday and Saturday last week.

Had the price of SOL continued to fall, and $ 21 million in SOL as security for the loan had gone into liquidation, Solend would have been left with almost no SOL. The project’s co-founder suggested that the rush to buy up so much SOL for cheap could have crashed the $ 2.6 billion Solana network.

Early Tuesday, the minutes announced that the whale borrower had moved USDC debt worth $ 25 million to Mango Markets, another Solana-based lending protocol, thereby relieving Solend of some of the burden and reducing the protocol’s risk.

The total value locked in the Solend protocol peaked at $ 1.4 billion in early April, halved to $ 725 million during the collapse of Terra in May and has been on a rapid decline over the past week.

As of Tuesday afternoon, the value of assets locked in the minutes was $ 247 million and an additional $ 171 million in outstanding loans.

That liquidation would have been disastrous for Solend, because the market would have struggled to absorb the $ 21 million SOL value (or 20% of the security) that would have been automatically liquidated. The lending protocol would have been in danger of losing almost the entire SOL lending pool at severely low prices.

And the liquidators’ struggle to buy up SOL worth 21 million dollars for fire sales prices would have put the Solana network through its steps, wrote Solend’s pseudonymous co-founder Rooter.

“This can cause chaos, and put strain on the Solana network,” they wrote in the blog post. “Liquidators will be particularly active and spam the liquidation function, which has been known to be a factor that has caused Solana to go down in the past.”

After convincing the borrower to move some of the debt to another protocol, Solend managed to reduce some of the exposure, but did not remove it completely. The borrower still owes $ 84 million to the protocol.

Society has implemented measures to reduce this risk, or at least prevent it from happening again.

The Solend community earlier today voted for overwhelming approve a proposal that will impose a loan limit of $ 50 million per account and adjust the smart contract (the data code that governs the lending protocol) so that it will temporarily liquidate 1%, not 20%, of deposits on subordinated loans.

The DeFi The lending protocol, the name is a summary of the words “Solana” and “loan”, began to try to contact the borrower last week when it looked like the deposit of 5.7 million SOL which provided security for a $ 108 million stablecoin loan (US Dollar Coin and Tether), can be liquidated if the price of SOL fell to $ 22.30.

Rooter, the co-founder, even introduced a proposal, labeled “SLND1,” to take control of the account so that security could be liquidated in an organized way that would not clog (and potentially crash) the Solana network. But after to vote for the plansociety overturned it.

“We have listened to your criticism of SLND1 and the way it was conducted,” the Solend team wrote of the proposal to invalidate the vote after receiving feedback that 24 hours had not been enough time for members to cast their votes.

At the time, markets were nervous about news that cryptocurrency lender Celsius had frozen withdrawals to prevent a bank run and the $ 3 billion hedge fund Three Arrows Capital was negotiating with creditors to stay solvent.

Solend works in the same way as many other lenders in DeFi, which is a term used for non-custodial apps, which allows users to trade, borrow and borrow cryptocurrencies without any third-party intermediaries, such as banks. At Solend, users deposit security – currently 47 different coins and tokens spread across 18 liquidity pools – and borrow cryptocurrencies worth up to 75% of their security.

Using crypto to secure loans on any blockchain has been particularly risky in the turbulent market. In May, Lido took to Twitter to warn borrowers about that Ethereum they had deposited to borrow Lido Staked Ethereum (stETH) can be liquidated.

A similar problem arose last week when a large borrower, at that time is believed to be Three Arrows Capitaltried to avert the liquidation of $ 300 million worth of loans from DeFi lenders Aave and Compound.

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