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Solana-based Solend Protocol Introduces Borrowing Limit, Reduces Max Liquidation

coingape.com 21 June 2022 04:40, UTC
Reading time: ~2 m

As CoinGape reported, the Solana-based “decentralized” lending protocol Solend has been grappling to avoid a liquidity crisis amid the SOL price crashing and the whale accounts having huge margin calls.

Earlier, the Solend protocol planned to overtake the whale accounts with emergency powers. However, it faced a huge backlash from the community. While the liquidity risk continues to hover over Solend. It has come with a third proposal SLND3 that seeks to put a cap on the borrowing limit and reduce the maximum liquidations.

Solend’s SLND3 Proposes the Following:

  • Put a per account maximum borrowing cap at $50 million. Regardless of the collateral value, any debt above this will be eligible for liquidation.
  • Start with a per-account borrow limit of $120M USD and gradually reduce it to $50M. Solend will implement a reduction of $500K per hour.
  • Solend plans to limit the liquidation per transaction by a factor of 20. This means the maximum liquidation close factor per transaction will reduce from 20% to 1%.
  • Solend will also reduce the liquidation penalty for SOL from 5% to 2%. This will help to reduce the liquidation spam.

For its third proposal, Solend has so far reduced nearly 5,000 community votes with 98% in favor. The announcement notes:

Solend is reaching out to market makers to help provide better on-chain liquidity. This combined with our proposals should reduce DEX market impact to a manageable level.

There have been several anomalies pointed out with the voting taking place on Solend. A single voter passing on over 90% votes in favor and deciding the fate of $270m in user assets.

Well, Solend has to really fix things before things get from bad to worse and the community loses faith. Currently, the recent market reversal and the SOL price trading at $35 are giving them breathing space. However, if the market collapses, and SOL drops to $20, there could be major liquidations in place.

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