An Insider’s Perspective on How Solend Avoided a Multimillion-Dollar Liquidation

Seeking the Whale

While traditional finance looks at Decentralized Finance (DeFi) with some skepticism, its open nature just avoided a multimillion-dollar liquidation.

Solend, Solana’s biggest decentralized lender, evaded a $107 million margin call last week. The effects would have been disastrous for Solend and Solana, as the market would have seriously struggled to absorb the considerable selling pressure.

The community realized the impending threat to the anonymous whale's position and took to social media and on-chain messages, urging him to reduce the position or increase collateral. Finally, the lender was alerted on time and redistributed its funds into other protocols.

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“Gracefully” Resolved

A week after the close call, and with the waters settling down, Web3Wire reached out to Solend’s Founder, Rooter, to ask about his perspective on how DeFi can improve global finance and Solend’s current position. His answers are as follows:

Q1. How is DeFi equipped to handle incidents like these in comparison to CeFi?

Rooter: “DeFi's potential is in 1) its ability to make finance transparent to avoid liquidity crises like the one we're seeing now with 3AC/Celsius/etc., and 2) making access to financial services permissionless for anyone in the world.”

Q2. What is the current state of the protocol, and what are its plans?

Rooter: “We're glad that in the end, things were resolved gracefully. No users lost funds. Solend is improving its systems, so this issue never happens again. Solend will also be releasing a decentralization roadmap outlining how operations will be fully decentralized to the governance token holders over time.”

Q3. How important was the role of Binance in contacting the whale to solve the problem? 

Rooter: “It's unclear whether Binance was the key to resolving the incident. The whale mentioned that they also found out about the news via Reddit, so they may very well have contacted us regardless.”

Q4. What happened with the anonymous lender?

Rooter: “After all was over, we asked the whale if they plan to continue using Solend in the long term, to which they responded, 'Yes, I think Solend is a great project.' Solend is dedicated to protecting its users. When a real-life trolley problem arises, our users come first.”

Despite its great potential, DeFi still has a lot of room for improvement. But the space seems better equipped to handle risks than Centralized Exchanges (CEXs) — especially considering the abundance of issues platforms like Celsius and Coinflex have been facing. Traditional finance also has methods in place to face such issues, but it lacks a fundamental characteristic: Full transparency.

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What is Solend:

Solend is an algorithmic, decentralized protocol for lending and borrowing on the Solana blockchain. Users of the Solend protocol can earn interest, borrow, and leverage long or short. In addition, funds deposited on Solend can be utilized as collateral for loans. 

Learn more about Solend:

Website | Twitter | Discord | Docs

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