Solend, a DeFi protocol on Solana, just passed a controversial governance proposal that could save Solana from mass liquidations.
- Solend Passes Controversial Protocol
- Future Of DeFi
Solend Passes Controversial Protocol
Solend, despite being built on Sam Bankman-Fried supported Solana, is dealing with liquidity concerns just like everyone else in Defi (and CeFi for that matter). However, they took an unusual step to deal with their particular concerns. Whether that step was good or bad is in the eye of the beholder.
The drama started with an unresponsive whale who took out a margin position described as “so degenerate.” Said degenerate position could have started cascading liquidity issues across the platform. To combat another major crypto disaster from happening, the protocol announced an emergency governance vote earlier this morning.
The proposal asked their community to vote on whether to “Enact special margin requirements for large whales that represent over 20% of borrows and grant emergency power to Solend Labs to temporarily take over the whale’s account so the liquidation can be executed OTC.”
Governance proposal SLND1 has passed.
Special margin requirements for accounts that represent over 20% of borrows are now in effect.
There will be a grace period for 3oSE…uRbE to reduce their leverage by themselves. pic.twitter.com/dsZhFRC8ZX
— Solend (we’re hiring!) (@solendprotocol) June 19, 2022
Just six hours later the proposal passed.
97% voted “Yes.” The Solend team said via Twitter “The Solend core team did not vote in this proposal.”
As a result, the team will lower the margin of the whale against their will to a much safer level. The whale was facing liquidation if Solana hit $22 USD. Currently, it’s trading in the 33 USD range.
FatmanTerra, who spoke to the SOL team, mentioned that if the proposal hadn’t passed it wouldn’t have just been a matter of liquidations: “In addition to cascades, without an OTC execution, bots won’t be sufficiently incentivized to liquidate him due to high slippage & lag. This means $100m in stablecoin deposits (that users can’t withdraw; 100% utilization) will be at risk – some/most of it may become bad debt.”
Recommended: Can Solana Pay Compete With PayPal?
Future Of DeFi
This obviously raises a lot of questions re: how “decentralized” decentralized finance really is.
First off, DeFi isn’t DeFi isn’t DeFi. Every protocol is different. They have their own rules and smart contracts special to them. It’s unfair to extrapolate what’s happening with Solend as being indicative of DeFi everywhere.
Interestingly, protocols on Solana, in particular, have unsurprisingly become like the “dogs who look like their owner” meme. Famously, Solana restarts its network whenever it wants and casually changes its circulating supply. It’s no surprise then that Solend would take a similarly do whatever it wants approach. — one Solend user apparently made up 90% of the “yes” votes.
That said, it might not be a bad thing. Sure, what we saw with Terra and their sham vote was a very bad thing. It pissed off its community members and its partner exchanges. However, this move may very well be good for everyone but the whale on Solend.
It’s a slippery slope of course. Giving this sort of power to one person or a small group of individuals, over time, could lead to bad outcomes. But this outcome in particular seems like it’s good for the gander. Which so far has been rare when it comes to DeFi governance proposals.
Recommended: Ethereum Co-Founder Says Solana is Unsustainable