Ratio Finance
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Ratio Finance

Market Crash Post-Mortem

“Where’s the fun in playing with knives if you can’t draw a little blood?”

— Donald Gorman

As a project building on top of Solana, the most recent (and brutal) crypto drawdown raised a lot of questions for the team at Ratio Finance.

From its inception, the team of Ratio Finance has decided to primarily focus on Risk Mitigation and Portfolio Management. The most recent crypto drawdown gave our team sobering validation that the risks of Decentralized Finance are not being properly articulated, and that no project or investor is immune from these risks.

We are still in the embryonic stage of open finance enabled by distributed ledgers. The recent volatility of the market offers valuable lessons for projects and investors that are interested in building the necessary foundations to allow governments, institutions, and retail investors alike to benefit from the unique asset classes that blockchains enable.

Ratio Finance is on a mission to De-risk Decentralized Finance. As such, we wish to offer our knowledge and perspective on various risks of participating in these novel markets that have not been adequately addressed. This is the first in a series of blog posts that outline some of the lessons that we’re taking away from the last few weeks. After our upcoming mainnet goes live, we will follow up with a series on the features of Ratio Finance that help mitigate the risks that we’re about to point out.

Strap in.

Ratio Risk Lesson 1: Infrastructure Matters

Although Ratio Finance still believes that the future of open finance will live on blockchains like Solana, we would be remiss to not talk about the problems that cheap gas fees enable in nascent (and beta) blockchains. According to www.explorer.solana.com, at a certain point last week, Solana’s transactions went from 50K+ transactions per second (TPS) to 228 TPS.

According to Solend, a project that was hit hard by Solana’s lack of performance and played a central role in Solana’s downward spiral, the issue for Solana stems from its cheap transactions.

A market crash caused many accounts to become liquidatable and created many profitable arbitrage opportunities. Liquidation and arbitrage bots began submitting a high volume of transactions in an effort to win liquidations and trades. Since opportunities were so profitable and failed transactions so cheap, bots were incentivized to spam the network with many duplicate transactions in the hope that one of them lands… At some points, two-thirds of transactions in blocks were attempted Solend liquidations.

This large load caused validators to falter, especially since they were not filtering out duplicate transactions optimally, wasting precious compute. The thousands of duplicate bot transactions also drowned out legitimate user transactions.

In turn this caused Pyth and Switchboard Oracle updates to fail. Many feeds were stale for minutes, others were stale for hours. Solend transactions were heavily impacted by this since they require all assets in a user’s account to have an up-to-date price to succeed. If any one of many assets has a stale price, the entire transaction fails. This is in contrast to a simple SOL transfer, which has no dependencies and thus has a higher chance of succeeding during network issues.

TLDR: Cheap gas creates an almost free lunch for Liquidation Bots, Solana network could not handle it, it rage quits.

The future of finance, indeed.

While we at Ratio are concerned about the way that the Solana network handled this recent crash, it is important to note that the economic behavior of the liquidation bots is to be expected precisely because of the cheap transaction fees that Solana offers. While Solana has already updated its blockchain to support faster transactions (even in events such as Solend’s liquidations), we remain bullish on the underlying infrastructure of Solana for handling complex financial transactions at scale.

What is of more philosophical interest, is what kind of applications can and should be prevalent on Solana. Fast transactions and low gas fees are a recipe for disaster for protocols that allow external liquidation of positions. Projects that rely on external liquidators on Solana, as of now, are introducing significant risk to their investors because they have created incentives for people to abuse the transaction speeds of the network. From our perspective, the current infrastructure of Solana allows for novel financial applications; but ones that require external liquidation offer risks that can no longer be ignored. It is for this reason that Ratio Finance will feature no liquidations in its first iteration on Solana.

How will we do that, you ask?

Stay tuned….

In the coming weeks, once Ratio Finance goes live, we have exciting innovations that will insulate us from these protocol risks.

In our next blog, we will dive into why liquidations matter, the way that different protocols approach liquidation, and what this means for the future of Finance.

You can learn more about us via the following links:

Telegram | Telegram Announcements | Twitter | Discord | Medium | Website



We are Ratio Finance, a Solana-native DeFi application for collateralized debt positions. Here you can find our announcements.

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