Tracking the crypto asset market

Solend, a DeFi protocol built on Solana, is at crossroads as threat of liquidation puts user funds at risk.

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In what seems to be a contagion, Terra’s (LUNA) fall threatens to cascade to other platforms. It is no surprise that all financial markets including crypto undergo bullish and bearish cycles. However, the volatility of those cycles depends on the macro environment and outlier events like covid-19. This time, the downfall of the Terra ecosystem has majorly contributed to the price downtrend of many crypto assets. Centralized decentralized finance (DeFi) platforms such as Celsius and Finblox offering lending services are forced to pause crypto withdrawals in fear of a bank run – a scenario where users rush to withdraw funds.

Now, the latest victim in this bear market is from a very well-known centralized layer-1 protocol. Solend, an algorithmic DeFi protocol built on Solana (SOL) with lending and borrowing services, was forced to take an action against the morals of decentralization.

In today’s article, we will take a look at Solend’s current situation, price action of Bitcoin (BTC) and a brief outlook on the altcoin market. 

Solend’s dilemma

An investor has deposited $170 million SOL and borrowed stablecoin worth $108 million in Solend. With SOL’s price on a downtrend, this investor’s position is inching towards liquidation triggering fears of putting user funds of the platform at risk. This liquidation event is looming amid Solana’s instability to run a blockchain uninterruptedly. User funds could be vulnerable due to slippage (difference between the expected price of an order and the price when the order actually executes). 

Solend, after trying to reach out to the investor, issued a proposal that will grant emergency power to temporarily take over the investor’s funds so the liquidation price can be lowered. This has raised centralisation concerns amidst heavy backlash from the crypto community. They have subsequently invalidated the first proposal. Though SOL is trading at $36 today, given the liquidation price of the investor at $22, the risk continues to exist.

BTC fighting to stay afloat

BTC closed last week below the 200-weekly moving average (WMA) for the first time in years. Historically, bulls have always defended the 200 WMA. Even though a weekly close below the critical support doesn’t warrant anything, it does signal weakness of the BTC bulls. The good news for now is that BTC has regained the horizontal level of $20,000 after slipping to the $17,000s. For BTC to resume a strong uptrend, it has to reclaim the 200 WMA, which is currently at $22,400. If that occurs, then $30,000 level might be possible given the strength that comes along with turning 200 WMA to support again. Losing the $20,000 level means testing the recently formed wick at $17,622. BTC is currently trading near $21,000. 

Among the top 20 crypto assets listed by market capitalization, Solana (SOL), Polkadot (DOT), Avalanche (AVAX), FTX Token (FTT) and Chainlink (LINK) have managed to register double digit gains against the dollar on a daily basis. Despite Solend’s situation, SOL is doing relatively well with 14% gain. FTT, token by FTX exchange, mobilized upwards by 11% on account of support lent by FTX to Solend. DOT (11%) and AVAX (13%) also showed some strength.

Short-term outlook for BTC

With the effects of LUNA’s downfall extending to other parts of the ecosystem, liquidations to the tune of millions of dollars are on the horizon if the prices of crypto assets fall further. Globally, inflation continues to rise leading to continued interest rate hikes in the future. While experts argue that the bottom is not yet in for this bear market, trying to time it might be difficult.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.