The Solend lending and borrowing protocol (SLND) is in a delicate situation due to the important position of a whale, close to liquidation. To avoid disaster, the platform has proposed emergency measures, which have been hotly debated by the community.
A whale’s position puts Solend in trouble
While the law of series seems to be falling on the ecosystem, the Solend protocol is experiencing difficulties with the position of a whale. Indeed, an address has borrowed 108 million dollars of USDC and USDT in the main pool of the platform. However, its collateral of 5.7 million SOL will no longer allow it to hold its position, if the price of the asset falls below 22.30 dollars.
Given the current market volatility, this is a possible scenario. However, the consequences that would result from such a liquidation have prompted the developers to try to contact the owner of the address. Since June 13, they have, for the moment, had no success.
Currently, this whale represents 95% of SOL’s deposits in the main pool and its loans amount to 88% of the USDC of this same pool. Beyond the fact that this liquidation would put the protocol at risk, it would worsen the fall in the SOL price, potentially causing a contagion effect on the Solana ecosystem.
But the real concern lies precisely in the instability of this blockchain. And for good reason, a fall below the fateful threshold would lead to numerous transactions from liquidators wanting to get their share of the pie. This would put pressure on the blockchain, which could fail again.
Worse, the concern about the situation has led users of the platform to withdraw their liquidity. This implies two consequences. The first is that all the USDCs and USDTs in the main pool are in use, which means that their owners can no longer withdraw them. Second, this state of affairs implies that possible liquidations cannot take place, creating an intractable problem.
A choice of governance contrary to decentralization
Faced with the critical situation, the developer team took measures that are open to debate. An emergency governance proposal was put to a vote. This gave Solend the agreement to take control of the whale’s position in case of liquidation. This liquidation would then be carried out over the counter (OTC), in order to avoid creating tension on the network.
The proposal also implied stricter collateral requirements, in the event that a whale represented more than 20% of the protocol’s liquidity. While this proposal was validated by 97.5%, it should be noted that the vote lasted six hours and did not really give the community time to react.
However, the founding team claims that they did not take part in the vote, so as not to bias the vote. The fact is that this move provoked strong reactions from the community. Indeed, the idea of decentralization, dear to our ecosystem, is relegated to the background with such possibilities. This is the last straw for what we call decentralized finance (DeFi).
This led Solend to initiate a new proposal. This also lasted six hours and involved cancelling the previous proposal while increasing the voting time to 24 hours. This proposal passed with 99.8%, which put the situation back to where it started.
With prices enjoying a slight rebound, this reduces the urgency of the problem, at least temporarily. Indeed, SOL is currently trading at $33.44 per unit at the time of this writing. While everything can quickly turn around, this gives the Solend community some breathing room to find solutions for the whale’s future.