- The lending protocol Solend made a controversial decision via governance on Sunday and promptly revised it again today.
- In order to avoid the risk of default, it was decided to liquidate the position of a wealthy market participant and thus take control of his funds.
- There is a controversial debate as to whether this does not contradict the core idea of the DeFi revolution.
Solend is a decentralized lending platform based on the Solana blockchain. Similar to other protocols of this type, investors can either borrow money by depositing a security or lending it for an interest. In addition to various stablecoins, Solend also supports various tokens.
As usual for many DeFi applications, Solend is managed via a DAO, which also allows to make profound changes. Anyone holding the native token of Solend is eligible to vote within this governance process. Recently, there was a momentous vote, which should save Solana and its DeFi ecosystem from a juicy crash.
Because while the overall market of crypto hedge funds and lenders like Celsius is being brought close to total collapse, the next risk is building up at Solend.
Liquidation could cause a mess
The reason for the first vote was the fact that a heavyweight market participant was on the verge of liquidation. He had deposited around 5.7 million SOL and received 108 million US dollars in stablecoins in return. But because it would be at least partially liquidated from a price of 22.30 US dollars per SOL, a crisis would already arise.
If the Solana price were to slip to this level, it would lead to an on-chain liquidation of up to 1.14 million SOL and thus probably to a crash that would have consequences beyond Solend. The total amount represents 95% of all deposits in SOL that have been deposited on Solend. At the same time, all other users will not be able to withdraw funds in USDC, because there are no reserves.
The fear is that in the event of a liquidation by the protocol, Solana will once again be brought to a standstill by a flood of transactions and that the Solana price could also collapse, which in turn could lead to cascading liquidations and would mean a real crash.
Criticism leads to revision
But the decision to intervene in the market and gently close the huge position to avoid the worst did not go down well. The criticism came from all over the DeFi-space, because this probably violates every ethos associated with the basic idea of decentralized financial systems.
Also from a legal point of view, it is unclear whether it is simply allowed to reach into the pocket of another person by voting. In the end, due to the massive pressure, a second vote took place and this not only revised the first one, but should also serve to extend the voting process and find another solution.
Currently, the team of Solend also sees more scope. At the time of writing this article, Solana stands at 33.40 US dollars and with this you have gained some distance. One can only hope that there will not be another sell-off, because according to the current situation, the worst fears could come true and Solana may be facing a huge price slump.
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