The past weeks have been quite painful for the cryptocurrency markets. Some of the reasons behind this were that several projects had collapses. For example, Terra’s UST stablecoin lost the US dollar peg, causing the LUNA price to drop sharply. Then Celsius suffered a liquidity crisis. Rumors of bankruptcy emerged for the cryptocurrency fund Three Arrows Capital (3AC). Now, crypto investors are facing another crisis. Here are the details…
Trouble with this altcoin after LUNA, CEL, 3AC
Solana-based “decentralized” lending protocol Solend is grappling to avoid a liquidity crisis as SOL prices plummet and whale accounts massive margin calls. Previously, the Solend protocol planned to bypass whale accounts with emergency powers. However, it received a great response from the community. Liquidity risk continues to hover on Solend. A third proposal, aimed at capping the borrowing limit and reducing maximum liquidations, has come with SLND3. Solend’s SLND3 recommends the following items:
- Set the maximum borrowing cap per account at $50 million. Regardless of the collateral value, debts above this will be eligible for liquidation.
- Start with a per-account borrowing limit of $120 million and gradually reduce to $50 million. Solend will apply a discount of $500,000 per hour.
- Solend plans to limit liquidation per trade to a factor of 20. This means that the maximum liquidation closing factor per trade will drop from 20 percent to 1 percent.
- Solend will also reduce the liquidation penalty for SOL from 5 percent to 2 percent. This will help reduce takeout spam.
Anomaly in Solend proposal drew attention
For its third proposal, Solend has so far downvoted nearly 5,000 community votes to 98 percent in favour. The following statements were included in the announcement notes. “Solend is reaching out to market makers to help provide better on-chain liquidity. This, combined with our offerings, should reduce the DEX market impact to a manageable level.”
There are a few notable anomalies in the voting in Solend. A single voter voted in favor with over 90 percent of the votes and determined the fate of $270 million in user assets. For many, Solend really needs to fix things before things get worse and the community loses faith. Currently, the recent market change and the SOL price trade of $35 are giving them breathing space. However, if the market crashes and the SOL drops to $20, there could be massive liquidations.
