Sunday, users of Solend, a service for borrowing and lending based in Solana, voted to take over the biggest whale account on the network. This was a shocking move. Solend said that the whale was in “a very large margin position.” It was said that this unprecedented move was made to avoid “chaos” during the liquidation process. What happened with the whale account, and how did Solend get control of it?
What Went on in Solend?
Solend Labs put up a proposal on Sunday to get rid of the biggest whale account on the network. The platform said that the whale’s “extremely large margin position” was “putting Solend protocol and its users at risk.” Based on what they told me, the whale held 5.7M SOL, which was worth about $170 million at a price of $22.30 to sell.
The user had also used the stablecoins they owned to borrow $108 million. If they could be sold, it could bring SOL prices down by a lot.
“If SOL falls to $22.30, the whale’s account can be liquidated for up to 20% of what they’ve borrowed, or about $21 million,” the proposal said. “It would be hard for the market to handle such a change because liquidators usually sell on DEXes. Solend could end up with bad debt if things go wrong. This could lead to chaos, which would put pressure on the Solana network.”
Solend also said that they have been trying to get in touch with the whale since June 13. But no matter how hard they tried, they couldn’t “get the whale to lower their risk or even get in touch with them.”
How did Solend did it?
Since the whale didn’t answer, Solend had to do something to “mitigate risk.” They supposedly set up a DAO just to vote on the idea. Also, voters supposedly only had six hours to vote, and the voting site was down for half of that time. The owners of tokens were then asked to vote yes or no on the following:
Vote Yes: Set up special margin requirements for large whales that make up more than 20% of all loans, and give Solend Labs the power to take over the whale’s account temporarily so that the liquidation can be done OTC.
Vote no: Don’t do anything.
The people who owned Solend tokens and voted said “yes” 97.5% of the time. In fact, the proposal just barely made it past the 1 percent mark, with only 1.13 percent of people voting yes. It’s interesting that the proposal passed because of the vote of a single person with a lot of money.
How does this affect decentralization?
Solend’s move to take over a whale account, which has never been done before, has made people worry about decentralization in DeFi. After all, DeFi has been praised for its ability to be decentralized, which means that financial services can be provided without banks or brokerages. It is this part that is now making people wonder.
Farokh, an NFT influencer, said, “A whale’s account is being taken over by other people because a DAO that was set up 24 hours ago and gave people 6 hours to vote (the website was down for 3 hours) said so.”
Loopify, on the other hand, tweeted, “decentralization at it’s finest.”
Sharat Chandra, vice president of Research and Strategy at EarthID, told Business Today that Solend labs has set a dangerous example by using “emergency powers” to close whale accounts. “Putting controls on wallets under the guise of reducing liquidity risks is not the way to make sure that DeFi platforms are stable.”
Solend’s action against the whale clearly goes against the idea of decentralization itself. We still don’t know what the move will mean in the long run.