Solend has captured the market’s attention since its inception. It is an algorithmic, decentralized lending and borrowing protocol built on Solana that has opened doors for Solana users to expand the methods they might use to profit from the market. Let’s take a closer look at this DeFi protocol.
Introduction to Solend
Solend is an autonomous lending and borrowing platform that lets users borrow and lend assets over the Solana network. On the protocol, an algorithm decides interest rates and collaterals, letting users earn interest and leverage Crypto assets on the platform for a long or short period. SLND, Solend’s native token, provides access to Solana’s decentralized finance (DeFi) market.
Solend’s Total Value Locked (TVL) was less than $20 million when it launched in August 2021. However, three months later, its TVL had soared to about $1 billion. Solend aspires to be the most popular DeFi lending and borrowing protocol on the Solana network.
Solend was previously prototyped as part of the June 2021 Solana Season Hackathon, which it won. The project’s success pushed it into the field of DeFi as a lending protocol.
Before we move forward to know the working of Solend and understand the concept better, let’s look at what DeFi lending and borrowing are.
DeFi lending and borrowing
Two basic elements on which any financial organization works include both lending and borrowing. Most people face a situation where they have to borrow some amount of money at some point in their lives, whether it be for college loans, a home, or a car.
The entire lending and borrowing process is straightforward. Borrowers get funds from lenders, usually referred to as depositors, in exchange for a percentage of their deposits. Borrowers are generally known as loan takers. In exchange for receiving a lump sum payment immediately, they are prepared to pay interest on the amount they get.
DeFi lending and borrowing give customers ultimate control over their money while allowing them to become lenders or borrowers in a totally decentralized and seamless way. It is built on open blockchains called “smart contracts,” the most popular of which being is Ethereum.
For a more detailed explanation, click here.
How does Solend work?
Solend begins with a simple premise: users may deposit assets into their Solend accounts to earn interest. These deposits can also be used as collateral for loans. The primary purpose of the platform is to decentralize lending.
Users must have a Solana wallet to use Solend. The SOL Crypto asset serves as the foundation of this Solana-based lending protocol. Users can shift to other currencies if they like, although SOL is the platform’s native currency. Solend features many “pools” of accessible Crypto assets that operate with multiple currencies. For example, the Stable Pool allows users to lend or borrow Cryptos such as USDC and USDT, while the Main Pool allows users to operate with all 20 Crypto assets currently supported by the platform.
After connecting their Solana wallet to the lending platform and adding SOL to their account, users can start borrowing or lending multiple kinds of crypto. The Supply option shows how much interest users may earn, while the Borrow option shows how much they can borrow with their existing Crypto stake.
There is a liquidation threshold for each loan that users take out. If Crypto prices change in such a way that causes the loan to go over the liquation threshold, users’ assets can be liquidated. The funds are subsequently transferred to the lenders as collateral for the loan.
What makes Solend unique?
- Rapid transactions: Solend operates on the Solana blockchain, which is known for its high speed and low transaction fees. This means that users can expect fast transaction times and low costs when using the Solend protocol.
- Better user experience: Solend has a user-friendly interface that is easy to navigate and understand, even for those who are new to DeFi. This makes it easy for users to borrow and lend assets on the platform.
- Supports multiple assets: Solend supports a wide range of assets, including stablecoins, Cryptos, and other digital assets. This gives users with a lot of flexibility when it comes to borrowing and lending.
- Collateralization: To borrow assets on Solend, users need to provide collateral in the form of other digital assets. This helps to mitigate risk and ensure that lenders are protected.
- Decentralized: As a decentralized protocol, Solend operates on the blockchain without the need for intermediaries or middlemen. This means that users have complete control over their assets and can interact with the platform directly.
What are the downsides of using Solend?
- Market risk: Like any other lending and borrowing platform, Solend carries market risk. This means that the value of the borrowed or lent assets can fluctuate based on market conditions, and users may experience losses if the value of their collateral drops significantly.
- Smart contract risk: As a decentralized protocol, Solend relies on smart contracts to execute transactions and manage assets. While smart contracts are designed to be secure, there is always a risk of bugs or vulnerabilities that attackers could exploit. In the event of a security breach, users may experience a loss of funds.
- Liquidity risk: Solend relies on liquidity providers to ensure that there is sufficient liquidity for borrowers and lenders. If there is a lack of liquidity on the platform, users may experience delays in accessing their funds or may need to pay higher fees to borrow or lend.
- Limited asset support: While Solend supports a wide range of assets, it may not support all of the assets users want to borrow or lend. This can limit the flexibility of the platform for some users.
Now that we know what Solend is, how it works, and its advantages and disadvantages, this brings us to the final question: What is the future of Solend?
Bottom line: The future of Solend
Solend has introduced the power of DeFi to the Solana network, providing users with several chances to boost their profits. Though some issues exposed the protocol’s weakness, the engineers’ ability to address the situation was a silver lining.
Solend also adds a robust DeFi component to the Solana ecosystem. Despite its vulnerabilities, the application is fun to play with, and as the loopholes are filled, more people will be excited about it.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.