All DeFi protocols, including Solend, come with risks, which are important to understand before depositing significant amounts of crypto. The main risks involved in using Solend are outlined here.
Smart Contract Risk
This is a risk that the Solend smart contracts get exploited to steal or permanently freeze funds. This risk is inherent to all smart contracts and can never be fully eliminated, but can be mitigated in various ways.
- Solend has a treasury with over $20MM that can be used as insurance for the Main Pool.
The Solend smart contracts have been live on mainnet with over $500MM in total value locked (TVL) for close to a year.
100% Utilization Risk
When an asset is fully utilized (100% of supply is lent out), there are no tokens left in the pool, which means that withdrawals and borrows will fail. Users have to wait until the utilization rate goes down, either through some users repaying their loans or depositing new funds.
A user is more likely to be affected by this if their deposit represents a large share of the pool, or if the asset has extremely high borrow demand.
Solend relies on Pyth and Switchboard for their price feeds to power liquidations. There is a risk that these oracles report incorrect prices, causing wrongful liquidations.
Solend offers over-collateralized loans, which means loans must be backed by collateral of greater value than the loan. If the value of the collateral dips below a threshold (determined by asset LTVs), a user's position will be liquidated with a liquidation penalty.
Untimely Liquidation Risk
In the event of large-scale liquidations or market turmoil, there is a possibility that assets liquidated are unable to cover the loans taken out by the liquidated user. The shortfall "or negative balance" is treated as "bad debts". Solend manages this proactively by isolating newer or riskier tokens in Isolated Pools and managing deposit limits or collateralization ratios to keep the protocol safe.