In a move that’s bound to raise eyebrows, Solend just launched “permissionless liquidity pools” that lets anyone play banker.
Solend, an algorithmic lending protocol that operates on the Solana blockchain network, lets users deposit crypto tokens into a liquidity pool in exchange for earning interest and the opportunity to borrow funds.
Yet in a break from past practice, Solend is not creating the pools but rather is letting anyone set them up.
Like a regular liquidity pool, permissionless pools share fees with the creator. Because anyone from a well-meaning DeFi investor to the most degenerate of degens can create a liquidity pool, Solend advises users to “be careful about which pool you interact with”.
Creators of liquidity pools can run away with the money deposited.
“If bad debt accumulates in the pool, users who are last to exit will not be able to withdraw their deposits,” the Solend team explained in a tweet. To keep away spammers, Solend created a 100 SLND fee, about $60, to launch a pool.
The platform was created at the Solana Hackathon in June 2021, and has since raised $6.5M from Polychain and Dragonfly, among other investment firms. So far, Solend has recorded $475M in total assets supplied and $174M total assets borrowed.
“I felt that it should be possible to set up a lending market for any token, which would allow shorting of ANY asset, allowing for better price discovery,” tweeted Rooter, the pseudonymous Solend co-founder. ”It was an opportunity to build the product I wanted to see in the world, taking learnings from past attempts which I felt could be improved. Permissionless pools were part of the vision since the start.”
Rooter did not deny the risk. He told The Defiant that people can abuse permissionless pools “similar to how bad actors have made honeypots on Uniswap with fake tokens, or tokens that can be bought but not sold”.
Permissionless pools are a pretty exotic and high-risk proposition.
“Lending against long-tail assets is a large, underserved market in theory. However, in practice, we have seen the risk is hard to manage at scale,” Dustin Teander, an analyst with Messari, told The Defiant. “In addition, it fractures liquidity so most of the big borrowers are not enticed to accept additional risk and worse liquidity. It’s a potentially large market that can certainly find a niche at first.”
Automated arbitrage and lending aggregator Arb Protocol and Solana staking pool SolBlaze committed to creating permissionless pools on Solend. According to Solend’s @legocactus, many more are planning to do the same.