Solend — a DeFi lending protocol built on the Solana blockchain — tried to take over a whale account that could put the protocol in limbo due to the risk of liquidation of its huge collateral. After the crypto community fired on the DAO behind Solend to approve such a proposal, the group soon rolled out a second proposal designed to overwrite the first, which was approved with 99% support from voters.
Hours later, the whale moved some of the funds to reduce risk.
Threat of mass liquidation
In a Sunday Twitter post, Solend asked the DAO to authorize “temporary takeover of whales’ accounts so that liquidations can be performed in OTC trades to avoid pushing Solana to its limits.” At the same time, it promised to liquidate whales’ SOL positions once they were not immediately liquidated. risk, emergency powers will be revoked accordingly.
The announcement was made on the platform, noting that whales who had deposited 5.7 million SOL (over 95% of Solend’s liquidity) received loans worth $108 million in USDC and USDT. In this case, if SOL falls from the current price to $22.3, up to 20% of the position can be liquidated. As such, it could lead to a liquidity crisis in the protocol, further deepening the collapse of the asset as fear spreads in the Solana community.
Solend attributes its unusual measures to the urgency of the problem and the inability to contact the whales directly. When the proposal passed quickly (within 6 hours), Solend was immediately met with backlash from the crypto community, and under pressure, it proposed to invalidate it and extend the voting period to 24 hours.
“We recognize that 1-day voting time is still short, but we need to act quickly to address the systemic risk and the fact that USDC cannot be withdrawn by ordinary users.”
The proposal – which ultimately passed “yes” with 99 percent of voters – noted that a new proposal that did not involve “emergency powers to take over accounts” would be introduced soon.
Community Response and Fund Transfer
Solend came under fire for stealing user assets and violating the principles of immutability and permissionless in DeFi when the first proposal passed and the authorization protocol seized the whales’ collateral and sold it OTC.
Crypto community veteran Jordan Fish – Cobie – teased the incident on Twitter, tweeting:
— Kobe (@cobie) June 19, 2022
Later, bitcoin bull Lin Alden added momentum to the conversation by retweeting it, suggesting that the project was just one of many scams that followed Satoshi Nakamoto’s invention of bitcoin.
A day later, Solend updated that whales had moved $25 million in USDC to Mango Markets to diversify their lending positions to other such platforms.
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