After community backlash, Solana-based Solend protocol withdraws decision to control whale account

  • Solend’s decision of enacting emergency powers to take control of whale accounts saw huge backlash. Community raised further questions about its “decentralization” while calling it an opaque process.
  • Solend floats a new proposal to terminate the previous one with Solana’s (SOL) rising price giving them a breather.

There have been major liquidity concerns emerging from the decentralized finance (DeFi) market in the crypto space. On Sunday, June 19, Solana-based lending platform Solend initiated an SLND1 proposal that would grant emergency powers to Solend Labs to temporarily take over control of whale accounts.

Solend said that the decision comes in order to mitigate liquidity risks as a Solend whale had an extremely huge margin position putting users at risk. Solend further justified its proposal noting:

If SOL drops to $22.30, the whale’s account becomes liquidatable for up to 20% of their borrows (~$21M). 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.

Solend said that the decision to execute emergency powers was to handle liquidation gracefully over-the-counter (OTC). The leading platform, Solend, is expected to control slippage at 3 percent with this move against 46 percent on the DEX platform.

Solend faces huge community Backlash

Although the proposal received 97.5 percent votes in favor, there was a huge community backlash for a “decentralized” protocol to execute such emergency powers. Dylan LeClair, senior analyst at UXTO wrote:

Absolute comedy. @solendprotocol, a supposed “decentralized” lending protocol built on Solana has “voted” to take over a whales account with emergency powers to eliminate the chance of forced liquidation. “Decentralized” in name only.

Evan Van Ness, founder of @WeekInEthNews said: “Sqlana’s Solend leverage platform just spun up a fake vote as cover to control a whale’s account so that it wouldn’t get liquidated & crash the $SOL server again. Solend is an official portfolio company of Solana. Insider deals. Central servers. This is the definition of CeFi. Bailouts for insiders through a sham and opaque political process”.

Solend initiates corrective measures

Soon after a major community backlash, Solend knew it was time to do the damage repair. Furthermore, the SOL price has jumped past $32 for now as part of the broader market recovery. This gives some time for Solend to pay attention to the feedback.

Thus, to invalidate the previous proposal SLND1, Solend has initiated a new proposal SLND2. The announcement notes:

We’ve been listening to your criticisms about SLND1 and the way in which it was conducted. The price of SOL has been steadily increasing, buying us some time to gather more feedback and consider alternatives. 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.

Solend further assured that it is committed to protecting users’ funds. It also assured the community about absolute transparency in the matter.

About Author

Bhushan is a FinTech enthusiast and holds a good flair for understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In his free time, he reads thriller fictions novels and sometimes explores his culinary skills.

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