What Happened at Solend?
On Sunday, Solend Labs posted a governance proposal to liquidate the largest whale account on the network. The platform claimed that the whale’s “extremely large margin position” was “putting Solend protocol and its users at risk”. Based on the details they shared, the whale held 5.7M SOL (worth about $170 million) at a liquidation price of $22.30.
The user had also used their holdings to borrow $108 million in stablecoins. In the event that they might be liquidated, it could drastically bring down SOL prices.
“If SOL drops to $22.30, the whale’s account becomes liquidatable for up to 20% of their borrows (~$21M),” the proposal read. “It’d be difficult for the market to absorb such an impact since liquidators generally market sell on DEXes. In the worst case, Solend could end up with bad debt. This could cause chaos, putting a strain on the Solana network.”
Furthermore, Solend stated that they have been trying to get in touch with the whale since June 13. However, despite their efforts, they were unable to “get the whale to reduce their risk, or even get in contact with them.”
What Does This Mean For Decentralisation?
Solend’s unprecedented move to take over a whale account has raised concerns about decentralisation in DeFi. After all, DeFi has been praised for its decentralisation capabilities, wherein financial services are provided without any intermediaries such as banks and brokerages. It is this very feature that is now raising questions.
“A whale’s account is being taken over by other people after a DAO that was spun up 24 hours ago, with a 6 hour timeframe to vote (website was down for 3 hours), voted so,” NFT influencer, Farokh commented.
Meanwhile, Loopify tweeted, “decentralization at it’s finest.”
“Solend labs has set a dangerous precedent of using “emergency powers” to liquidate whale accounts,” Sharat Chandra, vice president of Research and Strategy at EarthID, told Business Today. “Imposition of controls on wallets on the pretext of mitigating liquidity risks is no answer to ensuring the stability of DeFi platforms.”
Clearly, Solend’s action against the whale goes against the very foundation of decentralisation. The move’s wider repercussions remain to be seen.