Solana, a public blockchain, was hit by a major network congestion issue over the weekend, specifically on Friday and Saturday resulting in a crash of the price of its native token SOL.
According to CoinMarketCap, the price of SOL had dropped by over 18% in the last 24 hours to trade at about $83.15 by the time of writing.
The congestion issue has however been sorted out although the SOL token price dip doesn’t seem to stop.
DeFi lending protocols faced with collateral liquidation issues
According to the company that operates on Solana validators, Laine, the liquidators on Solana-based DeFi protocols helped to create bots for the network overload to prevent Collateral Liquidation.
Users will have to present their collateral to avoid default on loans, where the collateral ratio should not go below a given threshold. If the price crashes, users will have to top up their collateral to avoid liquidation.
The benefits that liquidators get from liquidations explain much about the network overload that prevented users from topping up their collateral cleating a bloodbath on Solana projects.
“Due to market volatility, many leveraged positions on DeFi become eligible for liquidation. Liquidation can be triggered by anyone on an eligible position, if one liquidates an eligible position, one receives a bounty.”
Solana also noted that liquidators the same transaction a couple of times. On Twitter Solana said that the network is having issues onboards a new class of sophisticated builders and users. It has however released the update on how it will cub the issue and also make some development in the two to three months.
Solend (SLND), the biggest lending protocol on Solana, said that the liquidation problem affected the users badly, it said:
“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.”
In support of this one user claimed that they lost SOL 500 as they were unable to top up their collateral saying:
“I tried to repay my loan for over 8 hours yesterday but every transaction failed and I was eventually liquidated.”
Solana has been going through a similar issue a couple of times this year, in September 2021 it experienced an 18-hours network outage as a result of high transaction load, leading to some users not trusting Solana.