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Whale effect on Solend, how it affects Crypto-Market.

24 Jun 2022 By : Pankaj Gupta
Whale effect on Solend, how it affects Crypto-Market.

As we all know Solana is one of the leading crypto coins in the Cryptocurrency marketplace right after bitcoin and Ethereum.

Solend as a DeFi app that lets users borrow and lend funds without having to go through intermediaries founded in 2017, Solana is an open-source project currently run by Solana Foundation based in Geneva, while the blockchain was built by San Francisco-based Solana Labs.

Solana is much faster in terms of the number of transactions it can process and has significantly lower transaction fees compared to rival blockchains like Ethereum.

Solana implements an innovative hybrid consensus model that combines a unique proof-of-history (PoH) algorithm with the lightning-fast synchronisation engine, which is a version of proof-of-stake (PoS). The project supports an array of decentralised finance (Defi) platforms as well as non-fungible token (NFT) marketplaces.

Solana is much faster in terms of the number of transactions it can process and has significantly lower transaction fees compared to rival blockchains like Ethereum.

Solana implements an innovative hybrid consensus model that combines a unique proof-of-history (PoH) algorithm with the lightning-fast synchronisation engine, which is a version of proof-of-stake (PoS). Because of this, the Solana network can theoretically process over 710,000 transactions per second (TPS) without any scaling solutions needed.

To avoid the problem of long transaction time, waiting time, and massive energy consumption.

Solend Defi Applications working on its foundation.

Solend is a leading decentralised finance (DeFi) lending and borrowing platform built on Solana. Users can earn interest, borrow against, and leverage long and short crypto assets on the platform. This lending platform would now get the advantage of some new defi protocols to lend and get money which was launched a long time ago to get more funds in monetary deprecated situations and loan for crypto funds.

Aave and Compound, which are similar DeFi platforms built on Ethereum, have seen strong adoption. AAVE & COMP governance tokens have a combined value of ~$8 billion fully diluted, (approx 7.8 Thousand Crores in INR).

Although Solend currently has less than 10% of the Total Value Locked (TVL) of either Aave or Compound, the platform is experiencing exponential growth after launching its governance token, SLND.

Solana's cheap transaction fees and high throughput make it a preferred destination for DeFi, especially smaller transactions. Solend will likely benefit as an early leader in the Solana ecosystem.

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To conduct the liquidation OTC and prevent straining Solana, Solend asked the DAO for access to "temporarily take over the whale's account." In the meanwhile, it pledged that the emergency power would be removed as soon as the whale's SOL position was no longer immediately in danger of being destroyed.

This was reported as on the platform after the whale, who represented more than 95% of Solends liquidity, had deposited 5.7 million SOL to take out a loan for $108 million USDC and USDT. In this case, up to 20% of SOL's stake might be liquidated if the stock decreases from its present price to $22.3. Due to this, the protocol may have a liquidity crisis, further leading to the asset's decline.

However, the market price of the SOL tokens became unstable as the cryptocurrency market entered a bear market state. As a result, Solend's future is also under danger.

The crypto whale's account will enter the liquidation scenario and up to 20% of its borrowing might be liquidated if the market price of the SOL token falls below $22.27.

The Solend Protocol's smart contract is built to automatically modify USDC and USDT borrow rates at their maximum APY of >60% and >600% for hours, making the situation even more critical.

To prevent such a situation of liquidation and prevent the demise of its network, Solend Protocol has made attempts to get in touch with the crypto whale. According to the procedure, they have been making an effort.

The majority of users of Solend, Solana-based lending and borrowing service platform, has voted to control the largest whale account to mitigate liquidation risks and this has started raising serious questions about decentralisation in DeFi.

Solend labs has set a dangerous precedent of using "emergency powers" to liquidate whale accounts.”

Chandra explained, “Imposition of controls on wallets on the pretext of mitigating liquidity risks is no answer to ensuring the stability of DeFi platforms. "

Highlighting how this has become a general trend with DeFi, he said, “The illusion of decentralization in DeFi is becoming more evident than ever. Decentralized finance protocols have deviated from the first principles of decentralization and are increasingly veering toward centralization and censorship.”

 This Consolidation can cause movement in other crypto coins as well so to make the past movement, for tracing its impact.

Solend Labs used resources to liquidate its assets in the past few times.

Current news on how whales in this case had 5.7 million SOL deposited and had also borrowed over $108 million in stablecoins. Roughly $20 million in SOL token will be liquidated through over-the-counter trades. Over-the-counter trades will be preferred because on-chain liquidation might cause turbulence in the DeFi markets of the cryptocurrency. 

The recently approved proposal that gave Solend Labs permission to access a whale account in order to prevent liquidation has been invalidated, according to Solend, a decentralised finance (Defi) lending protocol based on Solana (SOL).

A governance vote titled "SLND1: Mitigate Risk From Whale" was approved by Solend earlier in the week. The market was at risk due to the whale liquidation, but Solend might reduce that risk according to the governance proposal. To get control of the whale wallet and liquidate it over the counter was the plan behind this suggestion.

Concerned about the SOL price decreasing and the eventual liquidation of the whale is Solend. Solend might have bad debts in such a case, which would put a significant load on the SOL network.

As crypto traders, you must give due attention to the movement of whales. 

On the cryptocurrency market Kraken in February 2021, the price of the Ether cryptocurrency dropped from 1.2 Lakhs INR  to 58 thousand INR for a brief period of time. While many things might have played a part, Kraken CEO Jesse Powell believed that the collapse was caused by a single whale who "decided to dump his life savings." Whales control a significant amount of cryptocurrency, hence their actions have a significant impact on the token's value. Additionally, they have more voting power because more money is on the line.

Whales mostly use two methods to influence cryptocurrencies:

They might provide a "sell wall" impact.

A whale occasionally posts a sizable order to sell a sizable portion of their cryptocurrency tokens. They maintain a lower price than other sell orders. This leads to volatility, which lowers the price of digital coins generally. Following this, there is a domino effect where others start selling their tokens at lower prices out of panic. As a result, whales can acquire more coins for less money, giving them more power.

They could profit from people's concern about missing out (FOMO)

Whales frequently artificially raise the price of the tokens by placing massive buy orders, which is the opposite of the "sale wall" effect. They increase interest in cryptocurrency tokens, which motivates buyers to increase their offers. By doing this, they also draw in the interest of more investors who are anxious about passing up a fantastic investment opportunity. Investors believe that since there is more interest in the token, they should also be able to purchase some of it. Whales are able to sell part of their tokens in this fashion and make a respectable profit.

However, in reality, the majority of those major participants don't actually trade on traditional cryptocurrency markets because their sizable orders could overwhelm the volume of the order books. Instead, they engage in Counter (OTC) trading, where they buy and sell currencies off the exchange books.