Solana grinding to a stop could have consequences that go much deeper than just delayed transactions.
The network outage that Solana saw yesterday caused a stir in the crypto market, with many worrying about the implications of having a $47 billion network stop working for hours.
But, as most focused on the immediate implications the outage had on SOL’s price, the long-term consequences were largely undiscussed. A cryptocurrency researcher pointed out that once the network got online again, there was a high chance for large price deviations to appear on the DEXes built on Solana, which could lead to a significant reduction in the overall liquidity on the network.
Danger looms behind Solana’s network outage
The anonymous researcher behind the popular Galactic DeFi newsletter said that the longer Solana remained offline, there was a higher chance for large price deviations to appear on the network. Any form of leveraged derivatives markets on Solana was at risk of under-collateralization, he explained.
“Normally when the network is operating properly, all is good because there are some safety buffers put in place, oracles running, and liquidation incentivization.”
However, the researcher noted that once Solana got back online, there could be a huge surge of miners and arbitrage traders looking to exploit the difference in price between the last processed block on Solana and the first block that goes online. If the first handful of actions on the Solana network managed to drain the liquidity from decentralized exchanges and then liquidate the assets, there is a high possibility that many lenders on the network would automatically default.
“This may end up being another induced, naturally heavy transaction load in pursuit of the profits to be made. If the infrastructure isn’t ready for it, it could just crash once again,” he went on to explain.
After the Solana validator community elected to restart the network on September 15th, the mainnet beta was upgraded to version 1.6.25. All dApps, block explorers, and supporting systems on Solana are expected to recover throughout the day.
Since the restart, no meaningful insolvency was registered on the network. According to CometShock, the only damage was done by fast traders that bought cheap SOL on centralized exchanges and sold them on the overpriced SOL markets on-chain.
With charts showing a local top and a subsequent bottom, he concluded that most of the arbitrage and MEV opportunities have been executed and cleared.