How Risky Are The Largest On-Chain SOL Positions? A Deep Dive with SolanaFM
Introduction
The market downturn over the past few weeks has unleashed a series of volatile and unpredictable price movements, serving as a grim reminder that inadequate risk management can lead to devastating consequences — both to retail and institutional investors alike. The recent cases of Celsius Network and Three Arrows Capital inching towards insolvency were heavily tied towards a collapse in the price of their major investment, Ethereum, in turn resulting in even more liquidations across the crypto market.
Could a similar incident happen within Solana? What would happen if the largest SOL positions got liquidated? This is what SolanaFM aims to uncover in this report by tracking the biggest on-chain wallets holding SOL (both spot and perpetual), evaluating the risk of these positions and visualising any possible implications to the price of SOL if major liquidations occur.
Evaluation Strategy
To evaluate the amount of risk involved in the largest on-chain positions on SOL, we will use the explorer to track the wallets with the largest spot SOL holdings and uncover key details including who the wallets belong to, how much of the circulating supply is held by these wallets and their recent wallet activity. This will be followed by the wallets with the largest open perpetuals positions, assessing the risk of these positions based on the price at which they opened the position, how much leverage the position is in, and how far their account is from liquidation.
Tracking the Largest SOL Positions (Spot)
Let’s begin by exploring the largest on-chain spot holders on Solana. The figure below shows the top 5 wallets holding SOL amongst the circulating supply.
These five wallets hold a total of $277M worth of SOL (Wrapped), amounting to 1.9% of the total circulating supply. We tracked the recent activity of these wallets and discovered a similar nature across each wallet. Transactions on these wallets were high in frequency and involved consistent asset movements like the figure shown below.
Upon further verification, we uncovered that the Top 5 wallets holding SOL belonged to the vaults of various Solana protocols — namely Solend Protocol, Atrix Finance, Orca, Serum Protocol and Mango Markets. The accounts’ owner addresses have been tagged on our explorer.
This would come off as a relief since protocols within the ecosystem are much less likely to liquidate such large positions compared to whale traders. However, an indirect risk still holds if any positions on these protocols are over-leveraged. The recent case on Solend Protocol is a clear example — a whale account which supplied 95% of SOL’s deposits and borrowed over 85% of Solend’s USDC supply pool was approaching liquidation levels, potentially putting other lenders on the platform in danger of liquidation. We will explore this in more detail in the next section, where we track the largest non-spot positions in Solana.
Tracking the Largest SOL Positions (Non-Spot)
Let’s now explore the largest non-spot SOL positions — in particular, the largest futures trades currently open and any borrows with the largest margin on-chain. We will zoom into cases from various protocols, namely Solend Protocol (Lending), Mango Markets (DEX), Zeta Markets (Derivatives).
Solend Protocol
Solend Protocol has been in the center of attention due to the recent events; A whale account had accumulated a massive position on the platform, supplying 5.7M SOL ($170M) and borrowing over $108M in USDC and USDT. This account was unresponsive for 3 days and approaching liquidation levels — in the worst case, the protocol would have to severely deplete both supply pools in order to cover the account’s collateral. On top of that, liquidators on Solend are bots that are programmed to carry out the liquidation process on DEX liquidity, in turn affecting the supply of SOL in other DeFi protocols when a position of such size gets liquidated.
This account has since contacted Solend and the team advised to move some of their debt to Mango Markets, while they repay the borrowed funds to Solend. This is seen in the recent transaction activity of the whale account below.
However, we observed an odd course of action — at the time of writing, the account appears to have deposited 1.7M SOL into Mango Markets as collateral to borrow USDC and USDT from the platform. This was likely done to facilitate the repayment process to Solend.
The whale, in essence, is taking one debt to repay another. This is an extremely risky move that puts an additional DeFi protocol in danger of insolvency. The account currently holds a 1.55x leverage and a 47% health ratio — this means a 64.5% decrease in the price of SOL, or SOL’s price hitting $12.50 would risk the position on Mango Markets getting liquidated as well.
The events that unfolded on Solend Protocol with this whale could possibly occur again on Mango Markets if the whale continues borrowing at this rate. Any sudden liquidation or high-volume withdrawal may trigger a cascade of liquidations and severely impact the treasuries of both protocols involved.
Mango Markets
In the case of Mango Markets, we traced the largest futures positions on the SOL-PERP market and identified another account with a significantly large position worth over 390,000 SOL or $13,000,000.
View this account on our explorer here.
At the time of writing, this wallet has the largest open SOL position on the platform. Despite the size of the trade, the account appears to have a substantially high health ratio of 245.65%, meaning that the account is far from liquidation. This ratio is driven by a few factors — the trader had supplied more than enough collateral into the account for this trade. In addition, all assets in the account were deposited by the account owner.
Though the account may be safe from forced liquidations, this trader would eventually have to close this short position. We cannot conclude exactly when, but it would not be reasonable to rule out the possibility of instantaneous positive price action when closing a short with size comparable to the top 5 spot SOL positions. What we can conclude, however, is that the account managing the largest position on Mango Markets knows how to manage risk very well.
However, could the position affect Mango Market’s liquidity pools? At the time of writing, this position is equivalent to 19% of the protocol’s SOL supply pool. The breakdown of assets can be seen in the figure below.
This means that in the case of liquidation and withdrawal, a significant portion of the supply pool would be withdrawn, possibly preventing other SOL lenders from withdrawing their funds. When considering the situation on Solend, a much larger risk still remains.
In the worst case, Mango may be forced to resort to other solutions to preserve their liquidity pools.
Zeta Markets
Based on Zeta Markets’ on-chain analytics, we found that the largest futures position consists of a long position worth 1423 SOL futures contracts ($51,718).
View this account on our explorer here.
At the time of writing, the balance on this account amounted to a total of $107,375, which means that leverage on this account was about 0.48x. With adequate collateral, this account is also highly unlikely to risk liquidation. In the scenario that the trader closes this position, the sell-off would also pose a relatively smaller risk to the price of SOL (compared to the positions in the previous cases).
The position sizes on Zeta Markets appear to be more risk-averse in terms of both size and leverage. This is likely attributed to the platform’s focus on options — a trading derivative that allows traders to buy a fixed-price ‘insurance’ against price crashes. Options can be an effective way to reduce portfolio risk if used properly. In future articles to come, we will dive into options trading in Solana in more detail.
The Bottom Line
With these case studies in mind, this brings us back to the initial question — How risky are the largest on-chain positions in Solana?
The top wallets holding SOL have been identified as protocol vaults, while most of the largest non-spot SOL positions appear to deploy sound risk management. However, this is not a cause for celebration; The position on Mango Markets shows us that complexities can occur when accounts with large positions in the protocol’s supply pool intend to liquidate their positions.
The positions of the Solend whale is also another major outlier which poses a very serious risk to the DeFi ecosystem if not handled properly. Beyond the largest on-chain positions, there could also be other substantial positions that are over-leveraged which could cause further volatility in the market.
It is apparent that the DeFi ecosystem in Solana requires more liquidity to prevent these incidents from happening in the future. These case studies prove that protocols have to work towards growing their reserves beyond the $100M mark to stay insolvency-resistant.
It is important to reiterate that the data used for this analysis mainly involve on-chain SOL supply. Though the incidents that happened with Ethereum involved much larger venture capital and investor funds, we must always carry out the due diligence and understand the potential risks ahead.
Appendix
- Distribution of wrapped SOL: https://solana.fm/address/So11111111111111111111111111111111111111112
- Transaction history of Atrix Finance’s Vault Account: https://solana.fm/address/3uTzTX5GBSfbW7eM9R9k95H7Txe32Qw3Z25MtyD2dzwC
- Top 5 wallets holding SOL (Wrapped): https://solana.fm/address/So11111111111111111111111111111111111111112/largest
- Transaction History of Solend Whale Account: https://solana.fm/address/3oSE9CtGMQeAdtkm2U3ENhEpkFMfvrckJMA8QwVsuRbE/tokens?cluster=mainnet-serum
- Overview of Solend’s Whale Account: https://trade.mango.markets/accountpubkey=DVaVmpvtkxvqbDXnxxVTnmjiNvH4SgKHFdgwMMpUjczx
- Overview of Mango Markets Whale Account: https://solana.fm/address/BgkbbgePeUKJ881UsL4o6Wv2i4qCjbXKi7kFQTYTihEM
- (Explorer)Zeta Markets Whale Account: https://solana.fm/address/4xRj56fZcMjKnwdCg7kdkPsPYx731kimmGUsNtDPvx3z
