Solend voted to take over a whale account to avoid disaster in Solana chain, users forced them to change their mind

Users of Solend, Solana’s decentralized protocol for borrowing and lending, have voted to force a takeover of the protocol’s largest account to mitigate liquidation risks. It’s about a whale whose extremely large margin position, according to Solend participants, was dangerously close to disastrous liquidation in the chain.

The governance decision received a lot of criticism from many users who criticized the team for undermining the ethos of decentralization. One of them was Binance CEO, Changpeng Zhao. He left on Twitter a message.

On 20 June, the team stated it took note of the criticism and put up a second proposal seeking to invalidate the previous decision.

“We’ve been listening to your criticisms about SLND1 and how it was conducted. The price of SOL has been steadily increasing, buying us some time to gather more feedback and consider alternatives,” the Solend team wrote. 

What’s happened

A unique governance vote, a first for Solend, would give Solend Labs great authority to liquidate Whale’s vulnerable assets (about $20 million in SOL) through over-the-counter (OTC) transactions instead of decentralized exchanges, where decentralized funding (DeFi) liquidation typically occurs if risks are confirmed. 

Solend Labs said the chain liquidation of the whale position “could cause chaos” in the Solana DeFi markets. An OTC deal would likely avoid such an outcome. Supporters of the intervention argued that the whale was not a typical user. His account holds $5.7 million SOL on Solend or more than 95% of the pool’s deposits. Against that, he borrowed $108 million in stablecoins. It is significantly more than anyone else has. 

If SOL’s liquidation price of $22.30 were reached, it would be responsible for about $20 million. SOL currently trades at $32.27. 

“Despite our efforts, we have been unable to get Whale to reduce its risk or even contact it,” the proposal says. “Given the way things are unfolding, clear steps must be taken to mitigate the risk,” says Solend’s statement. 

The proposal offered token holders two options: 

—   Vote yes: introduce special margin requirements for large whales that make up more than 20% of loans, and give Solend Labs the emergency right to temporarily take over the whale account so that the OTC can perform liquidation.

—   Vote no: do nothing.