Solana's Network Congestion Prompts Liquidations, Drives Away Users

cryptonews.com:

Public blockchain platform Solana (SOL) experienced high network congestion once again over the weekend. The team confirmed the outage, which extended from Friday to Saturday, adding that the network suffered from overload due to bots spamming the network.

According to Laine, a software and blockchain company that operates validators on Solana, liquidators on Solana-based decentralized finance (DeFi) protocols created bots to overload the network and prevent users from topping up their collateral, which resulted in the liquidation of collateralized positions.

To get leverage in DeFi lending protocols on Solana and other blockchains, users need to provide collateral to ensure they won't default on the loan. The collateral ratio should not fall below a certain threshold. When prices crash, users need to top up their collateral to avoid getting liquidated.

On the other hand, liquidators benefit from positions getting liquidated as they would secure a bounty. This explains why the liquidators on Solana DeFi projects overloaded the network and prevented users from topping up their collateral, which created a liquidation bloodbath across 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," Laine said.

Meanwhile, Laine noted that in order to "ensure they get in first and "win" the race," the liquidators submitted the same transaction dozens or hundreds of times. Laine added that those transactions were "compute intensive transactions" that weren't always valid and got "forwarded on from one leader to the next."

Echoing the same point of view, per an