‘We have limited risk:’ Jupiter Lend addresses Solana DeFi contagion fears

Jupiter Lend, a leading lending platform on Solana, has faced backlash amid allegations of ‘false advertising’ about risk.

According to critics, the platform ‘lied’ about its isolated risk and its rehypothecation could spark a wider DeFi contagion. 

Responding to the allegations, Jupiter Lend’s Kash Dhanda acknowledged that the initial ‘zero contagion’ claim from his team was not ‘100% correct’ and added,

“There is a very limited risk of contagion…But the vaults are actually isolated, even at each asset level. It is true, there is rehypothecation…this is where the yield on collateral comes from.” 

For the unfamiliar, rehypothecation involves a lender reusing a borrower’s collateral, like securities for banks or tokens in the crypto space.

This directly increases leverage that can be risky during liquidation events or bank runs (widespread instant redemptions). 

Notably, the above risk triggered the depegging of Stream Finance’s yield-bearing stablecoin xUSD and related assets in November. Investors incurred hefty losses.

As such, Jupiter Lend critics feared the protocol could expose broader Solana DeFi to a similar explosion. 

Kamino slams Jupiter Lend

The scrutiny began after Samyak Jain, founder of Fluid, acknowledged that Jupiter Lend vaults re-use users’ collateral for yield hunting and are ‘not completely isolated.’ 

Marius, founder of another Solana lending DeFi Kamino, noted that Jain’s statement contradicted his (Jupiter Lend) rival’s earlier claims of ‘no contagion’ risk. 

For him, this meant “misleading users” and denting trust. As a result, Marius said Kamino blocked a migration tool to Jupiter Lend to mitigate the risk.   

 “There is no isolation here and full cross-contamination, contrary to what is advertised and what people are being told.”

For Tushar Jain, Managing Partner at Multicoin Capital, the team at Jupiter was either ‘incompetent’ or ‘misleading users to attract deposits.’ 

Market reactions

Despite the crisis, there were no massive outflows from Jupiter Lend as of writing.

According to DeFiLlama, the lending protocol saw $36.5 million in Daily Inflows on the 6th of December and an additional $26 million on the day after. 

This suggested that the situation didn’t trigger massive investor panic, at least by the time of going to press. 

Jupiter Lend is part of the broader Jupiter ecosystem, which entails a DEX aggregator, staking, prediction, spot, and perpetual market trading, and more.  

However, in terms of lending traction, Kamino had a total locked value (TVL) worth over $3B, doubling Jupiter Lend’s size. However, the latter has been eroding Kamino’s share since October, per Token Terminal. 

Final Thoughts

• Jupiter Lend exec clarified the misleading ‘zero risk’ claims amid community backlash.
• Surprisingly, there was no massive investor panic as Daily Inflows remained steady.