Solend with potential to reshape Solana lending ecosystem
- Isolated pools are lending markets for a set of assets, serving as loan collateral against each other
- Cream Finance was hacked twice for listing assets with non-standard implementations
- Isolated pools enable better loan-to-value ratios
Solend, an algorithmic, decentralized protocol for lending and borrowing, is working on an exciting new product that has the potential to transform the lending ecosystem on Solana (SOL/USD). The product is isolated pools, which they write all about on their blog.
What are isolated pools?
These are independent lending markets that support a set of assets, which you can use as collateral for loans against each other unlike a single cross-collateral pool, in which you can borrow any asset against any other.
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It’s important to list new assets very carefully in a protocol with a single cross-collateral pool because it makes the protocol vulnerable to a new attack vector. The entire TVL of the lending protocol is at stake. Cream Finance was hacked twice for listing assets with non-standard implementations, losing $19 million the first time and $130 million the second.
ERC20 is a broad standard, with many tokens not conforming to specifications. In contrast, SPL tokens on Solana must comply with the SPL standard. Custom behavior is not possible. If assets listed on Solend can be minted, they have to have adequate liquidity and access controls.
Pools reduce risk of attack
While isolated pools are by no means a panacea, the value of the assets at risk is limited to that of assets in the respective pool. The protocol’s whole TVL isn’t at stake. Isolated pools will enable Solend to list many new assets that don’t meet cross-collateral pool requirements.
They also enable better parameters. The loan-to-value (LTV) ratios of SOL and USDC in the cross-collateral pool are currently 75%. In other words, you can borrow $75 for every $100 deposited. This prevents major losses for all lenders in the pool. The ratio can be increased to 95% in an isolated pool, bringing greater capital efficiency.
Higher leverage possible
With an LTV of 75%, just 4x leverage is possible. With isolated pools, this can be raised to 20x. More experienced users will benefit from this.
An approach with a tradition
Rari Fuse, an Ethereum-based (ETH/USD) isolated lending protocol with deposits amounting to $1 billion, can testify to the success of this approach.