Solend (CRYPTO: SLND), a decentralized finance (DeFi) lending and borrowing platform, recently highlighted the scarce decentralization most such projects face, as it tried to defuse a ticking bomb that might wreck Solana’s (CRYPTO: SOL) DeFi ecosystem and its liquidity.
What Happened: According to Solend governance proposal SLND1, approved three days before press time, a single whale had deposited 5.7M SOL (worth $170M at the time), equivalent to 25% of the protocol’s total value locked (TVL), which was used as collateral to borrow $108 million worth of USD Coin(CRYPTO: USDC) and Tether (CRYPTO: USDT).
The user was also responsible for 95% of Solend’s SOL deposits, and 88% of its outstanding USDC borrows.
If Solana’s price reaches a price of $22.30, the user’s loan would be liquidated through the on-chain DeFi ecosystem, which will be unable to process it with its limited liquidity. The proposal claims that “letting a liquidation of this size to happen on-chain is extremely risky” and “could cause cascading effects.”
See Also: How To Earn Free Crypto
Systemic Risk
This has been recognized as a systemic risk by Solend’s team members, who proposed in SLND1 to set a liquidation threshold of 35%, instead of 20%, and grant emergency powers to the Solend …
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