Liquidation Risk

Risk Description

Sendit carries a higher risk of liquidation compared to more established lending platforms such as Aave or Compound. This elevated risk primarily stems from its focus on memecoins, which typically trade in markets with significantly lower liquidity than those of more established assets.

In instances where a liquidation cannot be executed in full, it is possible for a lending pool to incur persistent or even permanent bad debt. Such scenarios arise when the value of the collateralized asset declines to a level at which it cannot be fully liquidated. Recovery of this bad debt is contingent upon a subsequent price increase of the underlying asset—a condition that may never materialize for certain tokens.

Risk Controls

As a platform we are implementing the following countermeasures to counteract this and reduce the risk for the overall platform:

Isolated Pools

Most importantly we want to protect sendit as a platform. This is why we want to isolate the blast-radius when memecoins on the platform rugpull or get sold-off too fast to unwind all debt. This is why every coin has its own pool against SOL so other assets and the health of the general platform pools are not affected.


High Liquidation Penalties & Liquidation Rewards

Users have a high incentive to pay back their debt on their own and not get liquidated as they lose substantial equity. Liquidators have a high incentive to liquidate fast and compete for the liquidation reward.


Position Size Limits

We limit the size of individual positions/loans to reduce the market impact and increase feasibility of a successful liquidation. This sizing is determined by the available liquidity and market activity of a token.

Socialization of Losses

The platform incorporates a socialization of losses mechanism to mitigate the risks associated with LPing to higher risk tokens. While some bad debt may occur, it is managed by distributing any incurred losses pro-rata across all liquidity providers (LPs). This approach prevents catastrophic losses for any single LP and ensures that individual risk remains minimal. Over time, the high aggregate yields are designed to significantly outweigh these distributed losses, maintaining overall profitability for participants.