Solend is a decentralized lending and borrowing protocol constructed on Solana. It’s lauded for increasing the strategies accessible for Solana customers to spice up monetary features. Filling a big hole within the Solana ecosystem, Solend drew a staggering $100 million in deposits in simply over a month post-launch.
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Solend rode the high scalability of the Solana blockchain, which had constructed its repute for being quick and with low transaction charges. The arrival of Solana meant customers may use their capital effectively by lending and incomes curiosity, utilizing the funds mendacity idle to earn earnings from a plethora of alternatives. According to the philosophy behind decentralization, Solend is a community-driven venture 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 difficulty and different associated ideas.
Solend is an autonomous lending and borrowing platform that allows customers to borrow or lend belongings 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, supplies 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 venture to stroll into the world of DeFi as a lending protocol.
How does Solend work?
At its core, Solend permits customers to have interaction in decentralized lending on the Solana community. Customers deposit belongings 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 posh underwriting course of to find out the monetary danger for an establishment when sanctioning a mortgage. They might simply take lengthy and short-term loans, as all processes are self-propelled due to smart contracts that consider a mess of clauses for organising borrowing limits and amassing curiosity.
How crypto lending works on Solana
For lending and borrowing on Solend, customers require a Solana pockets with sufficient funds to pay the fuel 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 belongings, together with native cash, stablecoins and memecoins, including versatility to the platform. All the itemizing course of is ruled by the group, in sync with the philosophy of DeFi.
Earlier than customers can borrow or lend crypto belongings, they should join their Solana pockets to the platform and add SOL to their account. Customers can verify their transaction particulars by an account panel.
Earnings and rewards
The lender not solely earns curiosity based mostly on annual proportion yield, resembling typical lending, but in addition extra rewards within the type of SLND tokens, that are the native tokens of Solend.
Solend has a major international 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 accessible on the token checklist, 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 in depth tutorials. The panel has the “Provide” choice, telling customers concerning the curiosity they might earn. However, the “Borrow” choice tells customers the quantity they might borrow based mostly on the crypto belongings 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’ belongings 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 shortly borrow and promote crypto belongings with out paying extreme transaction charges. Solend’s treasury supplies insurance coverage cowl for the belongings within the pool in case of any exploits or hacks.
Dangers related to utilizing Solend
Whereas speaking concerning the salient options of Solend, there are dangers related to utilizing it:
Unsuitable feed by oracles
Oracles reporting the mistaken feed may play havoc on Solend. The value 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 concerning the exploiter’s deal with.
Vulnerability of sensible contracts
One other danger risk is a bug or vulnerability of the sensible contract. Solend is an algorithmic, decentralized protocol, and any malfunction of the sensible contracts may consequence within the theft or everlasting lack of funds.
Associated: What is a smart contract security audit: A beginner’s guide
100% utilization of funds
Like all DeFi swimming pools, a danger situation is 100% utilization of funds. One can’t take a mortgage if no belongings 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.
Yet one more danger risk is related to liquidations. Although Solend affords overcollateralized loans, one can’t neglect that the crypto market is risky, with fluctuating asset values that would consequence within the liquidation of funds of an unsuspecting consumer. This makes it vital for everybody to pay shut consideration to their loans and investments.
Massive, single debtors
Being a big lending pool, a key vulnerability of Solana is the presence of a giant, single borrower, known 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 impressive mortgage of $108 million price of USD Coin (USDC) and Tether (USDT), backed by collateral of $170 million price of SOL. Every thing was high quality 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 may have resulted in over $21 million of SOL getting dumped in a single shot, with extreme repercussions out there.
The venture builders tried to contact the whale to no avail. They had been pressured to publish on Twitter and Reddit, urging the whale to contact them, which spooked many different customers who started to drag out their funds. The builders finally managed to contact the whale, who added extra collateral.
Nonetheless, earlier than the whale added the collateral, the builders — of their quest to manage the harm — proposed emergency powers to manage 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 facility of DeFi to the Solana community, providing customers many alternatives which have the potential to beef up their earnings. Although the whale difficulty laid naked the vulnerability of the protocol, the silver lining was the builders’ skill 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 difficulty to the satisfaction of most stakeholders raised the protocol’s credibility.
Moreover, Solend brings a powerful DeFi component to the Solana ecosystem. Vulnerabilities however, the appliance is intriguing to tinker with, and because the loopholes get plugged, extra customers may discover it thrilling.