DeFi is in trouble. Solana’s Defi Platform, Solend, tried to take control of the Solend Whale wallet in order to prevent the major SOL holder from liquidating the project. Thankfully, the Solana community voted against Solend controlling the Solend whale wallet. Read the full story here.
The arrival of crypto winter has made the ecosystem desperate. In that desperation, Decentralized Platforms have started to take measures to stop the sell-off to stay afloat.
Solend is the DeFi platform of Solana. It decided a couple of days ago to control the wallet of a Solend Whale – user with the most Solana tokens – to prevent him from selling the tokens and liquidating the platform.
The community voted to give Solend emergency powers to the Solend. Community backlash led to Solend taking back the proposal. So, what is the full story?
When users Voted to give Solend Control of the Whale wallet
Sunday was not a great day for the crypto market. With crypto crashes taking down token values left and right, exchanges started to take desperate stands to stay active. Some, like Celsius, decided to stop users from withdrawing from their accounts. Other exchanges follow suit.
However, decentralized platforms did what no one could have foreseen. Solend, Solana’s DeFi, organized a governance vote to give itself the power to liquidate the assets of the Solend Whale. He had $20 million in SOL at the time.
The goal was to prevent the whale from selling SOL if the price dropped low.
When asked why the Lab would attempt such a thing, Solend responded by saying:
“On-chain liquidation of the whale’s position would destroy Solana’s DeFi market.”
The DeFi justified its decision to remove the whale from the board by stating it was for the good of the ecosystem.
However, the situation wasn’t as black and white as it seemed. Some were behind Solend’s decision to exercise control. They said that the whale was not a typical user. They claimed that the whale had deposited 5.7 million SOL On Solend, which is more than 95% of the pool’s total deposit.
Against the deposit, the whale had borrowed $108 million worth of Stablecoin.
Fear took hold because, at that time, Solana was trading just above $22.3 levels. If the price had hit lower, Solend would have been in a $20 million debt.
At the time of writing, Solana has been trading at $37.54
Solend brought forth an emergency proposal that read the following
Vote Yes: 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.
Vote No: Do nothing.
The proposal was called SLND
As the community was fearful and desperate to find some stability, it voted yes. 97.5% of users said that it was alright for the labs to control the wallet of the crypto whale for the sake DeFi’s sustainability.
However, the vote soon sent shockwaves across Twitter. Many users were surprised, thinking that it was Solend’s team that made up most of the users.
No matter what the team does, there is no way to change the fact that assets deposited into the platform can be confiscated by the team at any time. Escape from the platform is the best way out. At any time the team can tweet an announcement to forfeit your assets.
— cryptokk.eth 🦇🔊(L,3) (@Black_K168) June 20, 2022
And many claimed that the days of DeFi were over. Words start to float around about the precedence that this decision sets for the future of DeFi as a whole. The community said that this would make the platform centralized.
It was then that another vote took place to undo those emergency powers.
Your capital is at risk.
SLND2: Undoing the Emergency Powers
The backlash that the proposal received from the users forced Solend to introduce the SLND2 proposal. It aimed to take another emergency vote from the community to undo the emergency powers.
SLND2 received 99.8% approval to retract the emergency powers. An interesting part about the voting process is one wallet paid $700,000 to gain major voting power. It made 90% of the total votes and directed the vote’s direction to keep the platform stay true to its decentralized roots.
A copy of the proposal is available here https://t.co/aW4ps86YGO
— Solend (we’re hiring!) (@solendprotocol) June 20, 2022
Conclusion
While it is natural for a DeFi platform to look for what is the best, giving emergency powers to a single entity enforces centralization. Decentralized Finance is to welcome a new age of financial freedom. However, the recent decision proves that we’re yet to realize this concept to the full extent.
Another that we must keep in mind is that someone bought $700,000 worth of Solana at the last minute to get voting rights. These incidents can put the power solely in the hands of the wealthy. Whether it will be good for the system or not is something that time will tell. For now, we can only wait for the SLND3 proposal and see what steps Solend takes next.
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