The terror of the total failure of the Terra Network still runs deep. While the entire crypto space is struggling with falling prices, one or the other network has to fear for its survival. Lending protocols like Celsius, BlockFi, and Nexo have been particularly hard hit.
Lending protocol Solend in danger of collapse
As the name suggests, the Solend platform is a decentralized lending platform on the Solana network. When it too was recently in danger of collapsing, SOL investors were very concerned. The concerns had triggered the realization that a Solana whale, which had 95 percent of the SOL tokens deposited in Solend in its wallet, was in danger of being liquidated.
The Solana whale account had an outstanding loan of $108 million in stablecoins USDC and USDT on the Solana lending protocol Solend. The whale’s loan was in danger of being liquidated due to the falling Solana price, which had meanwhile fallen to a low of 28.54 US dollars. With devastating consequences for Solend: If the 21 million US dollars in Solana, which secured the loan, had been liquidated, SOL would hardly have been in the lending log.
To avert this scenario, the network co-founder “Rooter” launched the SLND1 proposal. That would have ensured that Solana would have taken control of the whale’s account – and liquidated the collateral in an organized manner. An idea that went too far for most of the SOL community and raised questions about the decentralization of the network – the proposal was rejected.
Then yesterday, June 21, came the good news for Solend users when the protocol announced that the whale 25 million of its USDC debt moved to Mango Markets had – a competing lending protocol. Some of Solend’s risk has been removed, but $84 million in debt is still outstanding. It remains to be seen whether a way will be found for the outstanding loan that will allow Solend and Solana to get off lightly.
However, in order to prevent such a scenario in the future, the Solana community has approved a proposal that limits the credit limit to US$ 50 million. The smart contract on which the protocol is based is also to be adapted. If 20 percent of deposits on undersecured loans have been liquidated to date, it should only be 1 percent in future in order to relieve the Solana network.