On Sunday, users of Solana DeFi platform Solend voted to force a takeover of the protocol’s largest account.
According to a Solend Labs, the user has “an extremely large margin position” that is extremely close getting liquidated which will put the protocol and its users at risk.
The user reportedly deposited 5.7M SOL (approximately US$170 million) – over 95% of the pool’s deposit – at a liquidation price of US$22.30 to borrow US$108 million in stablecoins. At the time of writing, SOL is trading at US$34.87.
“Letting a liquidation of this size to happen on-chain is extremely risky. DEX liquidity isn’t deep enough to handle a sale of this size and could cause cascading effects”, the Solend Labs team said in a blog post published Sunday.
The proposal would have granted “emergency power” to Solend Labs which would enable them to essentially seize the user’s funds so that the liquidation can be executed via OTC (over-the-counter) trades.
“This would be done via a smart contract upgrade. Emergency powers will be revoked once the whale’s account reaches a safe level,” they said.
While the initial vote was passed, it faced fierce backlash from the crypto community. Delphi Labs General Counsel Gabriel Shapiro accused Solend of setting a precedent that goes against the “DeFi ethos”.
Following the backlash, Solend asked users to vote on a new proposal to overturn the earlier vote, which received 99.8% “yes” votes.
“We’ve been listening to your criticisms about SLND1 and the way in which it was conducted,” Solend co-founder Rooter wrote in a blog post.
“The price of SOL has been steadily increasing, buying us some time to gather more feedback and consider alternatives”, they added.
Earlier today, Solend followed up with a third governance vote – a proposal to introduce a per-account borrow limit of US$50M, and to temporarily reduce the maximum liquidation close factor from 20% to 1% – which should reduce liquidator spam while still being enough of a bonus for liquidators to break even on slippage.
It seems like some degree of “centralized” decision making still has to occur when things go awry, which is why DeFi may just be a rich nerd’s pipe dream for now.