Latest Solana Clog Causes Liquidation Bloodbath
Solana experienced high network congestion yet again this weekend as the crypto market crashed. The clog prevented DeFi users from topping up their loan collateral, causing a flurry of liquidations.
Solana has faced more network issues, this time during a major market downturn.
Solana DeFi Users Liquidated Due to Congestion
Solana DeFi users were among the hardest hit in this weekend’s crypto bloodbath.
The Solana network suffered from congestion issues again Friday through Saturday as crypto assets like Bitcoin, Ethereum, and Solana itself plummeted. While Solana has faced similar problems in recent months, most notably in September when the network was hit by an 18-hour outage, this one had a severe impact on users who had borrowed assets on DeFi platforms like Solend.
SOL has crashed amid a market-wide downturn over the last few days, tumbling from $143 on Thursday to a low of $90 Saturday. As a result, multiple DeFi users who had taken out loans found that they needed to top up their collateral to avoid getting liquidated. This is a common practice with DeFi lending protocols on Solana, Ethereum, and other networks: to get leverage, users typically need to provide collateral with a base asset like SOL or ETH to ensure that they can’t default on the loan. If the collateral ratio falls below a certain threshold, the borrower loses their funds. This means that users often have to scramble to top up their collateral during market meltdowns. Otherwise, liquidators can close the position to secure a bounty.
This weekend, many Solana users struggled to top up their collateral because the network was too congested. Solana doesn’t have a mempool, and transactions are extremely cheap—especially compared to Ethereum. This creates a dynamic in which bots, DeFi borrowers, or other users are incentivized to flood the network with transactions. In the past, bots have attacked the network to secure a place in sought-after IDO sales. This time, though, liquidators and borrowers raced to send their transactions through as SOL crashed—with liquidators having more success. In a Saturday tweet, Solana Labs co-founder Anatoly Yakovenko said that “bots were sending duplicate TXs” and explained that the network’s ongoing congestion issue would be fixed in Solana’s 1.9 mainnet release.
Solend, Solana’s biggest lending protocol, acknowledged the liquidation problem early Sunday. The team behind the project posted a tweet confirming that it was “painfully aware” of the issue and was looking into a way to repay those affected.
We’re painfully aware of the issues in which users were unable to save themselves from being liquidated due to network congestion, and are looking into reconciliation.
— Solend 🟠 (@solendprotocol) January 23, 2022
In response, one user posting under the alias Klean claimed that they had lost 500 SOL during the incident. “I tried to repay my loan for over 8 hours yesterday but every transaction failed and I was eventually liquidated, losing a total of 500 SOL,” they wrote.
Solana Looks to Resolve Network Issues
The Solana Foundation, meanwhile, said that the network was “experiencing high levels of network congestion” and that engineers were working to resolve the duplicate transaction attack problem. “The last 24 hours have shown these systems need to be improved to meet the demands of users, and support the more complex transactions now common on the network,” a post read. It added that the team had made “lots of progress” with a link to Solana’s latest mainnet beta release, 1.8.14. Yakovenko also posted an update encouraging validators to sync their nodes for the new release. The 1.9 release is currently on testnet and is slated to go live imminently; the foundation has said that more improvements will be rolled out in the coming weeks.
Pyth, an on-chain price feed oracle powering DeFi on Solana, also suffered issues Saturday amid the market slide. Its price feeds were showing inaccurate data, which accelerated the liquidation problem for some users. Solana is expected to adopt Chainlink, DeFi’s most widely used oracle, sometime in the near future.
While Solana didn’t fare particularly well in this weekend’s crash, the wider DeFi ecosystem also faced problems. Several leading stablecoins fell below their peg Saturday as the volatile conditions meant that there was not enough collateral backing them. UST and DAI dropped to $0.97, while USDT briefly hit $0.95.
After Solana, Bitcoin, Ethereum, and the rest of the market tumbled over the last few days, the global crypto market cap has fallen to $1.7 trillion. It’s over 40% down from its November 2021 peak.
Representatives from Solana and Solend had not responded to Crypto Briefing’s request for comment at press time.
Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies.
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