What is Solend?

Solend is a lending and borrowing platform on the Solana network and describes itself as an “autonomous interest rate machine.”

Decentralized Finance (DeFi) is sometimes called the “wild west” of the financial industry, with its lack of intermediaries and central authority as everyone makes their money transfers, loans, and trades peer-to-peer. While it may seem like leapfrog progress, more innovations are yet to come as more platforms compete for this new lucrative space by delivering more benefits and advanced tech to DeFi users. 

Background 

Solend was established to achieve two goals: To be the most secure and easiest to use financial platform on the Solana chain. But while these are straightforward goals, achieving them is far from simple, leading the team to continuously improve its platform, create new opportunities, and above all, closely listen to its community despite challenges. 

What is Solend?

Solend is a lending and borrowing platform on the Solana network and describes itself as an “autonomous interest rate machine.” Users can earn interest and borrow up to 16 assets on more than 40 pools through fast transactions and low fees. Solana’s industry-leading technology gives Solend the advantage of having 100x more speed and lower fees compared to most DeFi services today.

SLND Token 

SLND is Solend’s native utility token with a 100M supply and is currently available on decentralized exchanges, including Gate.io and FTX. 

Percentage	Area
25%	Team
30%	Treasury
30%	Liquidity Mining
15%	Investors

cToken 

cToken are “yield-bearing deposit receipts,” and depositors can convert USDC into “cUSDC” to gain a tradable token that allows them to earn interest in Solend. Holders can hold this token in their wallet to earn passive income or may send it as a gift to allow someone to earn interest, too! 

Risks You Should Expect 

A blockchain-run platform, especially a DeFi network, is not a guarantee of 100% safety, as risks still exist that users should know before depositing any amounts of crypto assets. 

Smart Contract Risk 

While Solend is a firm follower of security industry standards, its smart contract and other competing DeFi platforms are always at risk of exploitation and freezing depositors’ funds. No platform can completely prevent these risks, and risk-mitigation policies are the best protection they can offer now. As for Solend, it has implemented three layers of protection to reduce the impact of a possible smart-contract “misbehavior.” 

First, it had its smart contract audited by Kudelski, a leading and independent cybersecurity firm. Second, it has launched a bug bounty program with a prize of up to $1 million. And third, it has already established a treasury worth $20 million for the Main Pool insurance. 

Zero Token in the Pool 

Solend’s withdrawal and borrowing transactions may collapse when its entire tokens are lent out and utilized, leaving zero assets for users. With this situation, depositors have no choice but to wait for the utilization rate to subside, which can happen when more users deposit fresh funds or repay their loans. Furthermore, in this worst-case scenario, users that will endure the most impact are the ones with a significant share in the pool. 

Oracle Risk 

For price feeds, Solend uses Switchboard and Pyth oracles to determine these critical data. But there’s always a risk that these platforms, no matter how advanced they are, may generate inaccurate prices that can trigger wrong liquidations on Solend. 

Liquidation Risk 

In Solend, users can apply for an “over-collateralized” loan, which must have collateral with a value higher than the loan. While this offers accessibility for a much-needed loan, the difficulty arises when the collateral’s value goes below a specified threshold, which will hit the borrower with a liquidation fee. 

Failure to Pay Loans 

Massive incidents such as global market disruptions or large-scale liquidations may prevent liquidated assets from being able to pay the loans of liquidated users. Solend prevents this risk by separating new and high-risk tokens in its Isolated Pools and continuously monitoring its collateralization ratios and deposit limits. 

Community Blocks Planned Whale Account Takeover

Recently, Solend caught everyone by surprise with its planned takeover of one whale account that can potentially derail its entire network. Solend explained that this account has a substantial margin position, with 5.7 million deposited SOL tokens, and was borrowing $108 million stablecoins in Ether and USDC. According to the platform, this whale can potentially create a bad debt, putting Solend and its users at risk. 

In response to this, a proposal suggested taking over the whale account to mitigate possible risks. The proposal immediately faced an objection through another proposal aimed to invalidate it. The second proposal gained 99.8% “Yes” from the community. 

Proposals 

Since the whale account incident, three proposals have emerged to better prepare the platform for possible risks from massive accounts. 

SLND 1 “Mitigate Risk from Whale” 

Published: June 19. 2022

Status: Succeeded 

SLND1 was the proposal that suggested taking over the said whale account. Its proposal seeks to offer Solend Labs the emergency power to execute this unconventional move. Despite Solend’s decentralized features, this suggestion is possible through a smart contract upgrade, and once the whale account’s danger mitigates, the system will immediately revoke this emergency power. 

Its suggestions include implementing margin requirements for whale accounts which constitute more than 20% of borrows. It also suggests implementing a liquidation threshold of 35% on accounts that borrow an amount equivalent to 20% of the entire borrows for the Main Pool. 

SLND 2 “Invalidate SLND2 and Increase Voting Time” 

Published: June 20, 2022

Status: Completed 

SLND2 created history by successfully blocking a takeover proposal that may have motivated other DeFi platforms to follow suit and undermine the entire industry’s much-prized decentralized image. Proposals include extending the governance vote to one day and creating an alternative plan that wouldn’t include account takeovers. 

SLND 3 “Introduce Account Borrow Limit” 

Published: June 21, 2022

Status: Succeeded

SLND 3 proposes to roll out a per-account borrow limit of $50 million, and any debt amount beyond this limit must go through liquidation. To avoid a drastic impact on users, it suggests gradually implementing this policy and starting with a larger limit of $120 million. The system will then reduce this amount by $500,000 per hour until it reaches the proposed $50 million limit.

Referral Program 

Solend Referral program lets users earn 20% of all borrow origination fees from depositors who have used their link. Origination fees are the small payments that Solend charges for every loan made on its platform. Interested participants must first have at least 1,000 SLND in their wallets before they can get qualified for the program. 

Conclusion 

While the takeover plan’s main objective was to protect the Solana network from a possible peril, it might have created more harm than good for Solend and the entire DeFi industry. It was a close call, but fortunately, it didn’t materialize. Probably the most important takeaway here is that Solend, and the rest of the DeFi platforms, should remain firm with their “decentralization” principle, no matter how challenging markets can become. Or else the community that keeps them alive may eventually turn against them.