A very interesting story has taken place in the last few days in the decentralised finance space. A story that taught us quite a bit. But let us first look at what happened and then come to our conclusions.
The danger of the “whale”
The decentralized finance protocol (DeFi) operating on Solana’s blockchain, Solend, a decentralized autonomous organization (DAO), finally decided after a second vote in a short period of time to cancel the “contingency plan” originally voted on last Sunday to remove control of the platform’s largest client, which is a $100 million “whale” that threatened to drive Solana into hard times should its position in Solend be liquidated.
What the “whale” did
The “whale” in question is the platform’s largest user, who deposited 5.7 million SOL – representing more than 95% of all Solend deposits – to borrow USDC and USDT worth approximately $108 million.
The tipping point
According to Solend, if SOL fell to $22.30, the wallet ran the risk of liquidating up to 20% of its borrowings, or about $21 million.
“It would be difficult for the market to absorb such an impact as liquidators generally sell into DEX. At worst, Solend could end up with unsecured debt,” the Solend team said, giving its users just six hours to vote on the proposal to take control of the wallet.
“With the way things are going, and the failure of the ‘whale’ to respond, it is clear that steps must be taken to mitigate the risk,” the original proposal to the Solend community read.
While the original vote was approved, i.e. it gave Solend the green light to take over the client’s account and make decisions on its behalf (!), it faced strong opposition from members of the cryptocurrency community.
Delphi Labs’ general counsel, Gabriel Shapiro, accused Solend of setting a bad precedent that was not only “contrary in every way to DeFi ethos”, but was also illegal.
Thus, following this backlash, Solend – on Monday – asked his community to vote on a new proposal to overturn the previous vote, which ultimately received an overwhelming 99.8% “yes” vote.
“We heard your criticisms of SLND1 and the way it was conducted. The price of SOL is steadily increasing, buying us some time to gather more feedback and consider alternatives.”SOLEND CO-FOUNDER
The new ballot also made a decision to increase the time given to the community to vote, making it one day, while Solend asserted that it is seeking “a new proposal that does not include emergency powers to take over account”.
This story, even if it lasted a short time, has taught us a lot. First of all, we know that if the “whale” does not diversify its stance, then Solana risks losing a lot of its value if it falls to $22.
In addition, we learned that DAOs, i.e. decentralized autonomous organizations that make decisions with the vote of their community, may even decide to take control of their clients’ accounts! That is a complete abolition of decentralization and implementation of extreme decisions.
What we have always said is that history in the Crypto space should teach us and be our guide for decisions we make in the future.