Solend is a decentralized lending and borrowing protocol built on Solana, a popular blockchain known for its high scalability and low transaction fees. With its robust infrastructure, Solend expands the opportunities available to Solana users to boost their financial gains by utilizing their capital more efficiently. Since its launch, Solend has filled a significant gap in the Solana ecosystem, attracting a staggering $100 million in deposits in just over a month.
The Advantages of Solend
One of the key advantages of Solend is its ability to leverage the scalability of the Solana blockchain. Solana’s reputation for being fast and having low transaction fees makes it an ideal platform for lending and borrowing activities. Solend users can lend their assets and earn interest, allowing their idle funds to generate profits from a wide range of opportunities. By embracing the principles of decentralization, Solend operates as a community-driven project where decision-making is done collectively.
Understanding Solend
Solend serves as an autonomous lending and borrowing platform specifically designed for the Solana network. The protocol employs an algorithm that determines interest rates and collaterals, facilitating users’ ability to earn interest and leverage crypto assets on the platform. To give users exposure to the decentralized finance (DeFi) market on Solana, Solend introduces SLND, its native token.
The Growth of Solend
Since its launch in August 2021, Solend has experienced remarkable growth. Initially, its total value locked (TVL) was less than $20 million. However, within three months, the TVL skyrocketed to approximately $1 billion. With its promising trajectory, Solend aspires to become the largest DeFi lending and borrowing protocol on the Solana network.
Development and Launch of Solend
Solend originated as a prototype during the June 2021 Solana Season Hackathon, where it emerged as the winning project. This success propelled Solend to venture into the world of decentralized finance as a full-fledged lending protocol, providing valuable services to the Solana community.
How Solend Works
At its core, Solend enables users to engage in decentralized lending on the Solana network. Users can deposit their assets into their Solend accounts and earn interest on those deposits. Additionally, users can collateralize their deposits and obtain loans without the need to justify their repayment means. Solend takes advantage of autonomous app functionality, eliminating the complexities of a traditional underwriting process. Instead, the protocol relies on smart contracts to automate borrowing limits and interest collection.
The Process of Crypto Lending on Solana
To participate in lending and borrowing activities on Solend, users must possess a Solana wallet with sufficient funds to pay the gas fees. SOL, the native cryptocurrency of Solana, grants users access to the platform’s functionality. Solend supports a growing number of crypto tokens, allowing users to leverage a broad array of assets, including native coins, stablecoins, and memecoins. The platform’s listing process is governed by the community, aligning with the decentralized finance philosophy. Before engaging in lending or borrowing, users need to connect their Solana wallets to the platform and ensure they have a sufficient amount of SOL in their accounts. Users can easily track their transaction details through the account panel provided by Solend.
Earnings and Rewards on Solend
Participating in lending activities on Solend offers users a two-fold benefit. Firstly, lenders earn interest based on an annual percentage yield, similar to conventional lending. Secondly, lenders also receive additional rewards in the form of SLND tokens, which serve as the native tokens of Solend.
Pool Creation and Management
Solend operates through different types of pools. The main global liquidity pool acts as the primary platform for listing tokens with reliable oracles and significant liquidity. However, before tokens are listed in the main pool, they are initially listed in isolated pools with lower liquidity and potentially higher volatility. Solend also allows anyone to create an isolated pool on the protocol through permission pools. The creator of an isolated pool earns 20% of the origination fees generated within that specific pool. Configuring the parameters of a pool involves selecting tokens from the token list and determining a predetermined trade volume before creating the pool.
Understanding the Account Panel
Solend provides users with an intuitive and visually pleasing account panel that allows them to engage with the platform’s functionalities without extensive tutorials. The panel includes options such as “Supply” and “Borrow.” The “Supply” option displays users’ potential earnings from interest, while the “Borrow” option indicates the amount users can borrow based on their crypto assets. It is important to monitor the red bar on the account panel, as it represents the liquidation threshold for each loan. If the value of the collateralized asset drops below this threshold, the system has the authority to liquidate the user’s assets and deposit the funds with lenders.
Revenue Generation and Insurance Fund
Solend generates revenue through protocol fees levied on loans. These fees contribute to the establishment of an insurance fund that aims to protect the platform and its users from potential exploits or hacks. Users benefit from the ability to borrow and sell crypto assets without incurring excessive transaction fees, thanks to Solend’s treasury-backed insurance coverage.
Risks Associated with Solend
While Solend offers various advantages, users must also consider the associated risks. Understanding these risks is crucial for informed decision-making:
1. Wrong Feed by Oracles
Oracles play a pivotal role in price reporting on Solend. However, if these oracles provide incorrect price feeds, it can have severe consequences, including wrongful liquidations. Solend faced an oracle exploit in the past, resulting in significant bad debt. The affected pools were promptly disabled, and relevant exchanges were notified of the exploiter’s address.
2. Vulnerability of Smart Contracts
As an algorithmic and decentralized protocol, Solend relies on smart contracts. Any bugs or vulnerabilities within these smart contracts have the potential to result in the theft or permanent loss of funds. Audit and security measures play a crucial role in mitigating this risk.
3. 100% Utilization of Funds
DeFi pools always carry the risk of 100% utilization, meaning borrowers cannot take loans if no assets remain in the pool. However, this risk can be mitigated if borrowers repay their loans regularly or if new supplies continually flow into the pool, preventing a shortage of available assets.
4. Liquidations
Although Solend offers overcollateralized loans, the volatility of the crypto market poses a risk. Fluctuating asset values can potentially lead to the liquidation of funds, which necessitates users’ careful monitoring of their loans and investments.
5. Large, Single Borrowers (Whales)
Being a significant lending pool, Solend is vulnerable to large, single borrowers commonly known as “whales.” These borrowers hold a substantial presence within the protocol, potentially leading to imbalances or even crashes. Solend faced a critical situation when a whale borrower with $108 million almost caused the liquidation of 95% of SOL deposits in the lending pool. To prevent such incidents, Solend introduced measures such as borrower ceilings and continued efforts to address vulnerabilities associated with whales.
The Future of Solend
Despite the vulnerabilities highlighted by the whale issue, Solend remains an exciting addition to the Solana ecosystem. It has successfully brought the power of decentralized finance to Solana, offering users numerous opportunities to enhance their profits. The handling of the whale situation demonstrated Solend’s ability to address challenges, strengthen its credibility, and adapt to the evolving crypto industry. As the protocol continues to address loopholes and improve its offerings, it is poised to attract more users and contribute to the growth of decentralized finance on the Solana network.