Marginfi's TVL Blow-Up

MRGN Mayhem. Chaos rocked Solana’s second-largest lending protocol yesterday, leaving in its wake a slew of perturbed users and a high-profile resignation. Should you be rushing to withdraw your funds?

Staking protocol SolBlaze initiated the drama, publicly accusing marginfi of acting in bad faith and violating BLZE emissions guidelines by failing to distribute user incentive allocations over a period of three weeks and selling airdrop allocations intended to allow marginfi to participate in SolBlaze governance despite attempts to contact the team.

MRGN Group co-founder MacBrenna Peet bluntly expressed his disagreement with the allegations, labeling it a “very unfortunate hit piece.”

He claimed that the failure to pay out user allocations was a result of Solana’s onchain congestion and had only occurred during the past three days, further maintaining the protocol frequently went out of pocket to pay BLZE rewards to users and played a major role in promoting bSOL integrations within Solana DeFi. 

As Crypto Twitter embroiled itself in debate over the emissions controversy, MRGN Group’s other co-founder, Edgar Pavlovsky, shocked the industry by tweeting his resignation from all things marginfi, an announcement that was subsequently confirmed by the protocol.

Multicoin Capital co-founder Kyle Samani sought to garner support for his venture investment, stating not so shockingly that he didn't intend to withdraw funds from his own portfolio company.

Still, others have expressed concerns that the protocol’s demonstrated instability could indicate it has a potential to rug depositors, despite the fact that ownership over marginfi’s multisigs is distributed among multiple signers.

In response to mounting controversy and with hopes for a near-term airdrop potentially dashed, marginfi depositors have begun fleeing for the exits in pursuit of greener pastures, sending total value locked (TVL) on the application plummeting by $260M, completely nullifying gains made in the month of March.

Smelling blood in the water, Solend founder 0xrooter chastised the marginfi team for badmouthing Solend and announced that the platform would be airdropping tokens to users who withdraw from marginfi’s lending markets and deposit into theirs.

The sudden nature of marginfi’s TVL outflows in the past 24 hours has certainly captured broad attention, but the protocol has been visibly struggling since early March when it was flipped by competitor Kamino, who announced a snapshot date for their first round of airdrops. 

Despite a seemingly amicable resolution of the initial SolBlaze incident that caused this dilemma, uncertainty regarding marginfi’s future continues to mount and it is clear that the protocol lies at a critical juncture, needing to either rally user support or risk fading into irrelevance.

The release of marginfi’s YBX decentralized stablecoin and the completion of other 2024 roadmap items may help the protocol regain a foothold, but the return to sector dominance can likely only be achieved by giving users what they truly want: airdropped tokens.

While marginfi undoubtedly wishes it could erase the damage that was done yesterday, the protocol is truly in control of its own destiny, with future success merely contingent on the willingness to drop a token, a fact recognized by traders on Polymarket who continue to price in above a 50% chance that an airdrop occurs before the end of June.

Considering that Kamino’s snapshot announcement resulted in a 2X TVL increase, expanding deposits in their lending market to $1.2B, it is not out of the question that marginfi could regain its crown with a skillful airdrop distribution.