Solend is a decentralized lending and borrowing protocol constructed on Solana. It’s lauded for increasing the strategies out there for Solana customers to spice up monetary positive factors. Filling a big hole within the Solana ecosystem, Solend drew a staggering $100 million in deposits in simply over a month post-launch.
Associated: DeFi lending and borrowing, explained
Solend rode the high scalability of the Solana blockchain, which had constructed its popularity for being quick and with low transaction charges. The arrival of Solana meant customers might use their capital effectively by lending and incomes curiosity, utilizing the funds mendacity idle to earn income from a plethora of alternatives. According to the philosophy behind decentralization, Solend is a community-driven undertaking the place voters collectively make selections.
This text explores Solend and its workings, together with lending and borrowing, earnings and rewards, creation of swimming pools, related dangers, the whale concern and different associated ideas.
Solend is an autonomous lending and borrowing platform that allows customers to borrow or lend property on the Solana community. An algorithm determines rates of interest and collaterals on the protocol, permitting customers to earn curiosity and leverage crypto assets long or short on the platform. SLND, the native token of Solend, offers publicity to Solana’s decentralized finance (DeFi) market.
When Solend launched in August 2021, its total value locked (TVL) was lower than $20 million. Round three months later, its TVL skyrocketed to roughly $1 billion. Solend hopes to be the biggest DeFi lending and borrowing protocol on the Solana community.
Beforehand, Solend was prototyped as a part of the June 2021 Solana Season Hackathon, which it received. The success catalyzed the undertaking to stroll into the world of DeFi as a lending protocol.
How does Solend work?
At its core, Solend permits customers to interact in decentralized lending on the Solana community. Customers deposit property to their accounts on Solend and earn curiosity. Furthermore, they’ll additionally collateralize their deposits to get loans with out justifying their means to repay.
An autonomous app, Solend eliminates the necessity for debtors to undergo a fancy underwriting course of to find out the monetary threat for an establishment when sanctioning a mortgage. They may simply take lengthy and short-term loans, as all processes are self-propelled due to smart contracts that think about a large number of clauses for organising borrowing limits and accumulating curiosity.
How crypto lending works on Solana
For lending and borrowing on Solend, customers require a Solana pockets with sufficient funds to pay the gasoline charges. They want SOL, the native cryptocurrency of Solana, to entry the performance of the community.
Customers can borrow or lend cryptocurrencies on appropriate platforms. The variety of crypto tokens the platform helps is steadily rising. This permits customers to leverage a broad array of crypto property, together with native cash, stablecoins and memecoins, including versatility to the platform. Your complete itemizing course of is ruled by the group, in sync with the philosophy of DeFi.
Earlier than customers can borrow or lend crypto property, they should join their Solana pockets to the platform and add SOL to their account. Customers can test their transaction particulars by way of an account panel.
Earnings and rewards
The lender not solely earns curiosity based mostly on annual share yield, resembling standard lending, but in addition extra rewards within the type of SLND tokens, that are the native tokens of Solend.
Solend has a foremost world liquidity pool, with a number of smaller remoted and permission swimming pools. Tokens having dependable oracles and thick liquidity may be listed in the principle pool. Most tokens, nonetheless, are listed on remoted swimming pools first earlier than being shifted to the principle pool.
Remoted swimming pools are smaller ones for itemizing tokens with much less liquidity and extra volatility. Permission swimming pools allow anybody to create an remoted pool on the protocol.
The creator of an remoted pool earns 20% of the origination charges generated within the particular pool. Tokens out there on the token listing, together with a predetermined commerce quantity, will seem on the itemizing. As soon as all of the parameters are met, customers should click on the “Create pool” button to create a pool.
The account panel is visually pleasing and intuitive, which individuals can start engaged on with out going by way of intensive tutorials. The panel has the “Supply” choice, telling customers in regards to the curiosity they might earn. However, the “Borrow” choice tells customers the quantity they might borrow based mostly on the crypto property they maintain.
The purple bar on the account panel signifies the liquidation threshold on every mortgage the customers have taken. If the worth of the collateralized asset goes down and the mortgage goes previous the liquidation threshold, the system can liquidate the customers’ property and deposit the funds with the lenders.
How Solend earns
Solend itself earns by levying protocol charges on loans. The charges additionally assist an insurance coverage fund for the platform. The customers can rapidly borrow and promote crypto property with out paying extreme transaction charges. Solend’s treasury offers insurance coverage cowl for the property within the pool in case of any exploits or hacks.
Dangers related to utilizing Solend
Whereas speaking in regards to the salient options of Solend, there are dangers related to utilizing it:
Fallacious feed by oracles
Oracles reporting the fallacious feed might play havoc on Solend. The worth feeds of Pyth Community and Switchboard set off liquidations on the platform. These oracles reporting incorrect costs would end in wrongful liquidations.
On Nov. 2, 2022, Solend did undergo an oracle exploit, culminating in $1.26 million of dangerous debt. The associated swimming pools had been disabled and exchanges had been knowledgeable in regards to the exploiter’s tackle.
Vulnerability of sensible contracts
One other threat risk is a bug or vulnerability of the sensible contract. Solend is an algorithmic, decentralized protocol, and any malfunction of the sensible contracts would possibly end result within the theft or everlasting lack of funds.
100% utilization of funds
Like all DeFi swimming pools, a threat situation is 100% utilization of funds. One can’t take a mortgage if no property stay within the pool. The issue is termed 100% utilization. Nonetheless, if debtors hold repaying their loans or new provides hold arriving, such an issue might not come up.
One more threat risk is related to liquidations. Although Solend gives overcollateralized loans, one can’t neglect that the crypto market is unstable, with fluctuating asset values that would end result within the liquidation of funds of an unsuspecting person. This makes it essential for everybody to pay shut consideration to their loans and investments.
Giant, single debtors
Being a big lending pool, a key vulnerability of Solana is the presence of a giant, single borrower, referred to as a whale. Whales have an outsized presence within the protocol. This resulted in a June 2022 crash involving a whale borrower.
A Solana whale with $108 million virtually crashed the Solana community in June 2022. The protocol barely prevented the liquidation of 95% of SOL deposits in its lending pool. Let’s dig a bit deeper into the way it all occurred.
The whale had an excellent mortgage of $108 million value of USD Coin (USDC) and Tether (USDT), backed by collateral of $170 million value of SOL. All the things was fantastic whereas the value of SOL was excessive, however when it tanked round June 15, the whale’s account was on the verge of the liquidation threshold. It might have resulted in over $21 million of SOL getting dumped in a single shot, with extreme repercussions available in the market.
The undertaking builders tried to contact the whale to no avail. They had been pressured to put up on Twitter and Reddit, urging the whale to contact them, which spooked many different customers who started to drag out their funds. The builders ultimately managed to contact the whale, who added extra collateral.
Nonetheless, earlier than the whale added the collateral, the builders — of their quest to regulate the injury — proposed emergency powers to regulate the account within the occasion of liquidation. This earned them dangerous press, because it was against the spirit of decentralization. The ultimate measure was to arrange a borrower ceiling of $50 million.
The way forward for Solend
Solend has introduced the ability of DeFi to the Solana community, providing customers many alternatives which have the potential to beef up their income. Although the whale concern laid naked the vulnerability of the protocol, the silver lining was the builders’ means to deal with issues. Crypto continues to be a brand new trade the place persons are studying on the transfer. The profitable dealing with of the whale concern to the satisfaction of most stakeholders raised the protocol’s credibility.
Moreover, Solend brings a powerful DeFi aspect to the Solana ecosystem. Vulnerabilities however, the applying is intriguing to tinker with, and because the loopholes get plugged, extra customers would possibly discover it thrilling.