CoinEx Institution | The Rise of New Lending Players: Is There a Future for Solana-powered Lending Projects
A rising star: Solana
According to public records, the Solana ecosystem now covers such fields as DeFi, blockchain infrastructure, NFT, games, and DApps. In particular, Solana boasts nearly 190 projects in the DeFi category alone, according to incomplete statistics.
Powered by all kinds of crypto projects, the Solana ecosystem has begun to take shape, covering an increasing number of blockchain categories. From the above picture, we can tell that DeFi is the most well-developed segment in the Solana ecosystem, covering multiple categories and infrastructure services, such as DEX, lending & borrowing, futures & options, and liquidity solutions, aggregators, synthetic assets, and oracles.
The importance of lending & borrowing applications in a public chain ecosystem
A gateway for funding and user traffic: For a new public chain, lending & borrowing projects are the underlying source of liquidity for its financial ecosystem because they allow crypto holders to obtain previously unavailable tokens for liquidity mining. All of this is based on one premise: these borrowers do not have to sell any cryptos.
Meanwhile, lending & borrowing services on a new public chain play a key role in attracting user traffic. For instance, many new lending projects attract liquidity providers through give-away programs like airdrops, which helps the public chain to engage with a large number of Smart Money in DeFi. Additionally, Total Value Locked (TVL) is also one of the key indicators for the performance of a public chain in the race.
The fast growth of Polygon is inseparable from its ability to attract the leading projects in lending and borrowing. For example, AAVE accounts for 45% of Polygon’s total TVL. In addition, AAVE has brought substantial user traffic to Polygon, thus driving up the TVL of the entire ecosystem. According to statistics from DeFi Llama, Benqi, the largest Avalanche-powered project, makes up 13.7% of the ecosystem’s total TVL. It is therefore clear that lending & borrowing projects are essential if a new public chain plans to attract funding and user traffic within a short period.
The unique features of Solana-based lending & borrowing projects: That said, what are the unique advantages of Solana-powered lending & borrowing projects that make them so important? Unlike EVM-compatible chains like Polygon and Avalanche, Solana is not compatible with EVM. Therefore, in light of the current circumstances, it is difficult for the leading Ethereum-built lending & borrowing projects to migrate to the Solana ecosystem. As such, almost all lending projects on Solana are native to the chain.
Moreover, the high throughput and rapid on-chain processing speed of Solana makes it an enabling environment for high-frequency blockchain applications such as DeFi and blockchain games. Solana claims to be the world’s fastest blockchain. Right now, its on-chain TPS peaks at 50,000. Such efficient computations effectively lower the cost of transactions. On Solana, the transaction cost normally stands at 0.000005 SOL, which is almost negligible.
It is noteworthy that the incredible growth of the Solana ecosystem enabled a TVL increase of nearly 300% from April to December in 2021, allowing its TVL to reach an all-time high. As of December 27, 2021, Solana’s TVL reached $12 billion, while the decentralized trading platform Raydium, the public chain’s leading protocol, accounted for 13.43%.
Lending & borrowing projects on Solana
1. Port Finance
Port Finance is a non-custodial liquidity protocol on Solana that provides innovative lending and interest rate derivatives. They plan to provide a basic lending protocol that allows users to take leverage position; offer fixed-rate lending so users know the amount of interest they will receive beforehand; create interest rate swap markets between fixed and floating rates for users to speculate or hedge on interest rate risk. As of December 29, its TVL reached approximately $138 million.
Sound institutional endorsement: Led by Jump Capital, institutional investors including Rarestone Capital, Raydium, and Solarium invested $1.2 million in Port Finance during the seed round.
Port Finance is the first lending & borrowing protocol on Solana that provides innovative lending and interest rate derivatives. As a winner of the Solana Season Hackathon, it is backed by endorsements from esteemed institutional investors.
Oxygen Protocol is an on-chain prime brokerage built on the fast-growing Serum ecosystem, running on the scalable Solana blockchain.
Endorsement by leading institutional investors: Led by Alameda Research, well-known institutional investors and holding companies including Multicoin Capital, Genesis Capital, and CMS Holdings invested in Oxygen during the strategic round.
The project is led by a team with a strong and comprehensive background, as well as expertise in traditional brokerage and the crypto industry. The total market cap of the project now stands at around $10 billion, which has fallen by 50% compared with its peak in October (about $22 billion). Additionally, the total circulating supply of Oxygen’s native token remains at about 1%.
As a Solana-powered lending protocol, Larix uses a dynamic interest rate model to create a risk management pool with higher capital efficiency, thereby securely and fully leveraging a wider range of collaterals.
Recently, Larix has completed its private placement and seed-round investment, covering investors such as Solana Capital, Huobi Ventures, Gate, MXC Global, BitMart, Fenbushi, Polygon, FBG, etc. Based on this lineup, we can tell that Larix’s investors are primarily exchanges and public chain ecosystem funds. As of December 29, the TVL of Larix stood at approximately $176 million.
As the first-place winner of Solana Season Hackathon Asia by quadratic voting, Larix is the first Solana project that uses a dynamic interest rate model. Also, the protocol is backed by strong institutional investors.
4. Jet Protocol
Jet is a lending protocol built on the Solana blockchain, with a focus on innovative lending products and cross-chain interest rate arbitrage.
Strong institutional investors: Jet has obtained an investment from Alamenda Research and SMS Holdings, although the amount remains unknown.
Jet Protocol features a large community, with about 15,000 Twitter followers and 15,000 Medium followers. As far as the Solana ecosystem is concerned, Jet is an innovative project.
Why did these projects choose Solana?
The chief reason is Solana’s outstanding performance, including its 65,000 TPS, 400 MS block time, low transaction fees, enhanced security, and a developer-friendly environment. Of course, sound capital maneuvering has also been essential to its success. The endorsement of Solana by leading institutional investors has attracted massive funds to its ecosystem, enabling a continued surge in its TVL.
Moreover, a number of stablecoins have made Solana more appealing as a stable store of value. Additionally, thanks to stablecoins, DeFi lending & borrowing applications on Solana have become more accessible to the general public. Well-established stablecoins are essential to building a strong, sustainable, and mature ecosystem.
In this regard, the number of Solana-powered stablecoin projects has been on a steady rise. For instance, back in 2020, Tether (USDT) was launched as the first stablecoin on Solana, which was great news for its ecosystem. Apart from Tether and Circle’s USDC (launched on Solana in January 2021), the public chain boasts many other stablecoin projects, including Terra, Parrot, UPFI, etc.
Solana, an early-stage public chain, could still use a lot of improvement. The public chain needs more developers and innovative projects to contribute to its ecosystem. In the future, Solana could be a great success, especially the lending & borrowing projects that function as the source of its underlying liquidity.
However, whether Solana could meet such an expectation would depend on the development of its ecosystem, in addition to performance and security. Lending & borrowing products alone are far from enough. In other words, the public chain must build a well-rounded ecosystem where growth is jointly driven by projects in various categories.
(References to above projects do not constitute any investment advice)