Solend, a lending and borrowing protocol built on the Solana blockchain, has emerged as a game-changer for Solana users looking to maximize their financial gains. Since its launch, Solend has quickly filled a significant gap in the Solana ecosystem and has already attracted an astounding $100 million in deposits within just over a month.
Solend’s success can be attributed to the high scalability and low transaction fees offered by the Solana blockchain. This scalability has allowed users to efficiently utilize their capital by lending and earning interest, thereby generating profits from various opportunities. In the spirit of decentralization, Solend operates as a community-driven project, with voters collectively making decisions.
This article provides an in-depth exploration of Solend, including its lending and borrowing mechanisms, earning potential, creation of pools, associated risks, and the notorious “whale” issue, among other related concepts.
So, what exactly is Solend? It is an autonomous platform that enables users to borrow or lend assets on the Solana network. The protocol utilizes an algorithm to determine interest rates and collaterals, providing users with the opportunity to earn interest and leverage crypto assets for long or short positions. The native token of Solend, SLND, allows users to gain exposure to Solana’s decentralized finance (DeFi) market.
Since its launch in August 2021, Solend’s total value locked (TVL) has skyrocketed from less than $20 million to approximately $1 billion within three months. The ultimate goal for Solend is to become the largest DeFi lending and borrowing protocol on the Solana network.
The workings of Solend are relatively straightforward. Users can deposit their assets into their Solend accounts and earn interest on their holdings. Additionally, they can use their deposits as collateral to secure loans without the need for extensive underwriting processes. Thanks to smart contracts, which consider various clauses for setting borrowing limits and collecting interest, all processes on Solend are self-propelled.
To engage in lending and borrowing on Solend, users need a Solana wallet with sufficient funds to cover gas fees. The native cryptocurrency of Solana, SOL, is necessary to access the network’s functionality. Solend supports a growing list of cryptocurrencies, including native coins, stablecoins, and memecoins, providing users with a wide range of crypto assets to leverage. The listing process for these tokens is governed by the community, aligning with the principles of DeFi.
Earnings on Solend go beyond interest rates. Lenders also receive additional rewards in the form of SLND tokens, the native tokens of Solend.
Solend operates with a main global liquidity pool, complemented by smaller isolated and permission pools. Tokens with reliable oracles and substantial liquidity are listed in the main pool, while less liquid and more volatile tokens are initially listed in isolated pools before potentially being shifted to the main pool. The creator of an isolated pool earns 20% of the origination fees generated in that specific pool.
The account panel on Solend is visually appealing and user-friendly, allowing users to easily navigate the platform. The panel provides information on potential interest earnings through the “Supply” option, while the “Borrow” option informs users about the amount they can borrow based on their crypto assets. A red bar on the account panel indicates the liquidation threshold for each loan, ensuring users are aware of potential risks.
Solend generates revenue through protocol fees on loans, which also contribute to an insurance fund. These fees enable users to borrow and sell crypto assets without incurring excessive transaction fees. The platform’s treasury provides insurance coverage for the assets in the pool, protecting against potential exploits or hacks.
While Solend offers numerous opportunities, it is essential to be aware of the associated risks. One risk involves incorrect price feeds from oracles, which can trigger wrongful liquidations. Solend experienced an oracle exploit in November 2022, resulting in $1.26 million of bad debt. The platform swiftly deactivated the affected pools and informed exchanges about the exploiter’s address.
Another risk lies in potential bugs or vulnerabilities in the smart contracts. As an algorithmic and decentralized protocol, any malfunction in the smart contracts can lead to fund theft or permanent loss.
Additionally, the risk of 100% utilization of funds exists, as a loan cannot be taken if there are no assets remaining in the pool. However, as borrowers repay their loans or new supplies arrive, this risk can be mitigated.
Liquidations pose another risk, as the volatile crypto market can result in the liquidation of funds for unsuspecting users. Vigilance is crucial when managing loans and investments on Solend.
A notable vulnerability on Solend is the presence of large borrowers, commonly referred to as “whales.” These whales can have a significant impact on the protocol, as demonstrated by a near-crash in June 2022 caused by a whale borrower with $108 million. To address this issue, the developers implemented measures such as setting a borrower ceiling of $50 million. While this incident highlighted the vulnerability of the protocol, the developers’ handling of the situation ultimately boosted the protocol’s credibility.
Looking ahead, Solend holds great potential for the Solana network, bringing a strong DeFi element to its ecosystem. As the platform continues to address vulnerabilities and attract more users, it offers exciting opportunities for those seeking to explore the world of decentralized finance.