Marginfi TVL plummets by $260 million, can the protocol still stand firm?

Author: Jack Inabinet, Bankless; Translator: Tao Zhu, Golden Finance

MRGN is in chaos. Yesterday, Solana’s second-largest lending protocol was in chaos, leaving a large number of users uneasy. Should you rush to withdraw your funds?

Staking protocol SolBlaze caused this farce, publicly accusing Marginfi of acting dishonestly, violating BLZE emission guidelines, failing to distribute user incentives within three weeks, and conducting an airdrop distribution designed to allow Marginfi to participate in SolBlaze governance despite attempts to contact the team.

MRGN co-founder MacBrenna Peet was outspoken about his disagreement with the allegations.

He claimed that the failure to pay user distributions was due to Solana’s on-chain congestion and only occurred in the past three days, further maintaining the protocol by frequently paying BLZE rewards to users out of pocket and playing an important role in promoting bSOL integration within Solana DeFi.

As Crypto Twitter was embroiled in controversy over the issuance, Edgar Pavlovsky, another co-founder of the MRGN team, shocked the industry by tweeting that he was resigning from all Marginfi affairs, a news that was later confirmed by the protocol.

Kyle Samani, co-founder of Multicoin Capital, who is trying to drum up support for his venture, unsurprisingly said he has no plans to pull money from his portfolio companies.

Nevertheless, others are concerned that the protocol’s demonstrated instability could indicate its potential to expose depositors to losses, despite the fact that ownership of Marginfi’s multisig is distributed among multiple signatories.

In response to the growing controversy and the potential collapse of recent airdrop hopes, margin depositors began fleeing in search of greener pastures, causing the total value locked (TVL) in the application to plummet by $260 million, completely wiping out the gains made in March.

Smelling blood, Solend founder 0xrooter condemned the marginfi team for bad-mouthing Solend and announced that the platform would airdrop tokens to users who exited the Marginfi lending market and deposited in its lending market.

While the sudden outflow of TVL from Marginfi has certainly attracted widespread attention over the past 24 hours, the protocol has been clearly struggling since early March, when it was dethroned by competitor Kamino, which announced a snapshot date for its first round of airdrops.

Despite the seemingly amicable resolution of the initial SolBlaze incident that led to this predicament, uncertainty about Marginfi’s future continues to grow, and it’s clear that the protocol is at a critical juncture where it either needs to garner user support or risk becoming irrelevant.

The launch of Marginfi’s YBX decentralized stablecoin and the completion of other 2024 roadmap items may help the protocol regain its footing, but a return to industry dominance may only come by giving users what they really want: airdropped tokens.

While Marginfi hopes it can undo the damage done yesterday, the protocol truly controls its own destiny and future success depends solely on the willingness to give away tokens, a fact recognized by traders on Polymarket who continue to price in a greater than 50% chance of an airdrop before the end of June.

Given that Kamino’s snapshot announcement resulted in a 2x increase in TVL, expanding deposits in its lending market to $1.2 billion, it’s not out of the question that Marginfi could reclaim the crown with a clever airdrop allocation.