Recently Solana’s biggest DeFi lender almost got rekt. The reason behind the incident was that Solend protocol didn’t set limits on the size of a borrower, causing a butterfly effect on the economic field. As a result, a single whale was responsible for the vast majority of Solend’s SOL guarantees and USDC loans. This guarantee was in liquidation risk if the SOL price dropped a lot. Let’s look at what caused the incident and whether it could have been prevented.
Brian Pasfield, CTO of Fringe Finance, commented on this situation:
Regarding other DeFi lending/borrowing platforms that have acquired a bad name of late, there are differences between non-custodial and many of those platforms. For example, Solana’s Solend did not have debt limits, let alone well-determined debt limits – which means it was poorly designed.
Even if debt limits are incorporated into a lending platform, the debit limits need to be determined in such a way as to properly balance protecting the platform from threats and maximizing users’ capital efficiency. The threats are price manipulation attacks and also the risk of excessive slippage when liquidators dispose of collateral assets won in a liquidation event, which would otherwise act to disincentivize liquidators and ultimately represent a risk of platform destabilization. A poorly-chosen set of lending parameters can result in a platform with little utility because, on one extreme, it could become insolvent and, on the other extreme, could offer too little capital efficiency for borrowers to warrant them using the platform.
What mechanisms does Fringe Finance offer to prevent such situations?
Fringe Finance is a platform that seeks to unlock the billions of dollars of dominant capital tied up in cryptocurrencies by offering guaranteed loans. Its team has developed a parameter modeling framework based on what they consider the sound theory to arrive at lending parameters designed to protect the platform yet maximize its utility for borrowers through relatively high capital efficiency. This solution will help platforms avoid the situations described above. The most recent published modeling is described in this article.
More about Fringe Finance
On June 24th, Fringe Finance, an all-new and inclusive DeFi lending platform, threw a stunning metaverse party to celebrate its Primary Lending Platform (PLP) launch.
From this date, lenders can deposit $USDC to PLP to earn interest, while borrowers can take out $USDC loans against their altcoins. At the moment, the platform supports $SHIB, $LDO, $APE, $MATIC, $LINK, $TOMOE (ERC-20 $TOMO), $REN, $IOTX, $BNT, and $OGN. However, the initial release is just the beginning of a journey whereby the PLP will progressively add support for a long list of tokens as collateral.
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