Solend – a DeFi lending protocol built upon the Solana blockchain – attempted to take over a whale account that supposedly could put the protocol in trouble due to its colossal size of collateral at risk of being liquidated. After the crypto community fired at the DAO behind Solend approving such a proposal, the organization soon launched a second proposal that aimed to overwrite the first one and got it approved with 99% support from the voters.
Hours later, the whale moved some of their funds to mitigate the risks.
A Threat of Massive Liquidation
In a Twitter thread on Sunday, Solend requested authorization from the DAO to “temporarily take over the whale’s account so the liquidation can be executed OTC and avoid pushing Solana to its limits.” Meanwhile, it promised that once the whale’s position of SOL is not at immediate risk of being liquidated, the emergency power would be revoked accordingly.
The announcement came on the platform, noticing the whale who had deposited 5.7 million SOL – making up more than 95% of Solend’s liquidity – to take out a loan worth $108 million USDC and USDT. Under this circumstance, if SOL drops from the current price to $22.3, up to 20% of its position could be liquidated. As a result, it may cause a liquidity crisis in the protocol, further deepening the asset’s plunge as fear reigns in the Solana community.
Solend attributed its unusual measure to the issue’s urgency and inability to contact the whale directly. When the proposal was passed in a speedy manner (within six hours), Solend immediately received backlash from the crypto community, and, upon pressure, it proposed to invalidate it, with an extended amount of voting time to 24 hours.
“We recognize that a voting time of 1 day is still short, but we need to act swiftly to address the systemic risk and fact that normal users can’t withdraw USDC.”
The proposal – eventually passed with 99% of voters saying “yes” – noted that a new proposal not involved with “emergency powers to take over an account” will be available soon.
Community Reactions and Moving Funds
When the first proposal was passed, authorizing the protocol to seize the whale’s collateral and sell it OTC, Solend was under fire for stealing users’ assets and working against the principle of immutability and permissionlessness in DeFi.
Crypto community veteran Jordan Fish – Cobie – made fun of the incident on Twitter, tweeting:
Comedy pic.twitter.com/pKJAxTmahU
— Cobie (@cobie) June 19, 2022
Later, bitcoin bull Lyn Alden added fuel to the conversation through a re-tweet, implying that the project is simply one of many scams following Satoshi’s invention of Bitcoin.
A day later, Solend updated that the whale had moved $25 million in USDC to Mango markets to spread their lending position across other such platforms.