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Solana Whale Transfers $25M from DeFi Protocol Solend to Mitigate Liquidation Risk

btcmanager.com 21 June 2022 17:00, UTC
Reading time: ~2 m

A “whale” Solana account has moved about $25M from Solend to another protocol to reduce the risk of liquidation. According to Solend, the investor moved the loan to Mango markets.

Whale Salvages Solend from Loan Issue

The Solana blockchain-based financial product Solend attempted to take control of its biggest customer, a so-called “whale” financier who it said might substantially impact market fluctuations.

According to Solend, the whale occupies a “huge margin position,” endangering the protocol and its users. The company said that it was about to accumulate a lousy debt in the worst-case scenario. The Solana connectivity could be straining as a result of this potential disruption.

Solend took to Twitter to announce the whale’s decision to spread the debt to other protocols, saying, 

“This shows commitment to working things out and solves Solend’s USDC utilization problem.”

Over 95% of contributions into Solend came from the one account, which contributed 5.7 million SOL tokens. In exchange for that, the protocol was acquiring $108 million in the Ether and USDC stablecoins.

Solend warned that if the value of SOL fell below $22.30, 20% of the profile’s assets, or around $21 million, might be liquidated. On Monday, the price of SOL was $34.49.

In a first for the DeFi community, Solend approved a motion giving it emergency authority to seize control of the whale accounts. To prevent a potential chain reaction of liquidations, Solend claimed that the move would enable it to sell the whale’s holdings through “over-the-counter” exchanges compared to trading.

What Caused this to Happen?

A Solend member obtained a $108 million stablecoin credit. Ninety-five percent of the SOL deposits in Solend’s primary lending pool, or 5.7 million Solana ($215 million), were used as leverage for the transaction.

The loan started to run the risk of being liquidated when the economy tanked. This was a prediction to occur if SOL dived below $22.30. Solend acknowledged that liquidation of this size on-chain would be extremely dangerous. The Solend protocol would risk amassing lousy debt due to a spiralling decline in SOL’s worth.

Later, while Solend suggested taking over the user’s current location and mechanically liquidating it in an over-the-counter (OTC) sale, it drew criticism. It then abandoned that suggestion due to concerns that it may jeopardize the degree of decentralization, which prompted it to search for an alternate remedy.

Solend gave a statement to support their choice of action, saying:

“This doesn’t completely solve the problem however, since the large liquidation wall still exists,” Solend wrote. “We’re in touch with the Mango team and 3oSE…uRbE to figure out a long term plan.”

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