Community warns of potential liquidations of whale positions in ETH and SOL
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The Solend lending platform team proposed to the community to introduce special margin requirements for large users. The developers also asked to be granted temporary authority to manage the whale’s account, which accounts for 95% of all deposits in Solana (SOL) and 86% of loans in USD Coin (USDC).
This proposal aims to mitigate risk imposed by a user with a large margin position on Solend.
— Solend (we’re hiring!) (@solendprotocol) June 19, 2022
Update:
The Solend community approved the developers’ proposal. Special margin requirements for large borrowers came into effect. The whale mentioned above was given a grace period to reduce leverage.
Governance proposal SLND1 has passed.
Special margin requirements for accounts that represent over 20% of borrows are now in effect.
There will be a grace period for 3oSE…uRbE to reduce their leverage by themselves. pic.twitter.com/dsZhFRC8ZX
— Solend (we’re hiring!) (@solendprotocol) June 19, 2022
Earlier, the founder of Solend under the alias Rooter said that one user holds $170 million in SOL on the platform’s deposits, and also has a debt position in stablecoins of $108 million. In his words, the liquidation price for SOL for this participant is $22.27. At the time of writing, the cryptocurrency trades near $30, according to CoinGecko.
3/ their liquidation price is $22.27. we still have a ways to go but want to be ready for the worst case scenario
if the whale were to get liquidated, it’d start with a partial liquidation capped at 20% of the outstanding borrows (~$21M)
— Rooter | Solend (hiring!) (@0xrooter) June 18, 2022
«If the whale were liquidated, it would begin with a partial closure capped at 20% of the outstanding borrows (around $21M),” he added.
Rooter explained that a position of this size could be implemented on the off-exchange market without problems, but most of Solend’s liquidators are bots that exploit liquidity on decentralized exchanges. In his view, the situation could trigger a cascading price decline and threaten other participants on the platform.
«Solend’s reserves contain $20 million that could help settle overdue debts, but in the worst case (for which we want to be prepared) this may not be enough,” the founder wrote.
Rooter emphasised that the team had tried to contact the whale but without success. Therefore the developers decided to bring the proposal to the community for consideration in order to stabilise the situation.
1/ in a worst case scenario, solend users lose $100M and the entire treasury of $20M is depleted. this proposal aims to prevent that.
we’ve spent hours debating different options and honestly this seems like the best path forward.
— Rooter | Solend (hiring!) (@0xrooter) June 19, 2022
«In the worst case, Solend users would lose $100M and the entire treasury of $20M would be depleted. The proposal is meant to prevent that. We have spent hours debating various options, and, honestly, this seems to be the best,” he wrote.
The developers proposed to impose special margin requirements for participants in the Main Pool who account for more than 20% of all borrows. For such players, a 35% liquidation threshold is planned. It is assumed that the new rule would be implemented via a smart contract update.
The team also asked for “emergency powers” to temporarily manage the account of the whale mentioned above. They explained this was necessary to conduct a potential liquidation via the off-exchange desk.
Voting on the proposal lasted 5.5 hours.
Market turmoil from liquidations of large market participants could arise not only in the Solana network. On June 18, an analyst under the pseudonym DeFiyst drew attention to a large debt position in the Aave protocol with a liquidation price of ETH at $895.4.
Hourly chart ETH/USDT on Binance. Data: TradingView.
However not all players were so fortunate. For example, on the Liquity lending platform, on June 18 a liquidation of 71,863 ETH was recorded at a price just above $927, according to Dune Analytics.
Meanwhile Celsius Network continues to pay down their debts on Aave and fully closed the position in LINK on MakerDAO.
Amidst the noise surrounding the Aave ETH whale teetering on the edge of liquidation, and the inactive Solend user getting worryingly close also, @CelsiusNetwork have fully paid down their $LINK Maker position ($37m).
