Decentralized finance lending platform Solend tried to fend off the effects of the crypto meltdown at the weekend when 97.5 percent of its users voted to give it emergency powers to liquidate its largest customer account. A second vote held today reversed the first.
Despite our efforts, we've been unable to get the whale to reduce their risk, or even get in contact with them
Solend, which allows users to deposit cryptocurrencies for lending to other users, has one "whale" responsible for 95 percent of the SOL cryptocurrency deposited on its platform (worth $107 million). The same user has borrowed 88 percent of available USDC, a stablecoin pegged to the US dollar. All said, the account has borrowed around $108 million in USDC and Ethereum. According to Solend's website, it has lent a total of $195 million in crypto assets.
"Despite our efforts, we've been unable to get the whale to reduce their risk, or even get in contact with them," Solend said in its vote proposal.
The successful vote gave Solend the ability to liquidate the user's account via OTC trades if SOL dropped to $22.30. It has come perilously close to doing so recently – SOL is currently trading in the $35 range but dropped to $26 last week as other cryptocurrencies have tumbled.
At its peak alongside other cryptocurrencies in November 2021, SOL hit $260. Given its plummet in value and hovering near the liquidation point, it's understandable why Solend might be worried.
'CeFi at its finest'
Comments on the governance page relating to the first such vote in Solend's history are a mix of support for what some voters saw as proactive customer protection, and frustration that the move represents the opposite of decentralized finance.
Decentralized finance (defi) eschews intermediaries, banks and other authority-vested institutions that make centralized decisions. Ideally more democratic in practice, defi has proven to be ripe for the picking by cybercriminals. The unregulated nature of defi and cryptocurrency has also been a key component of its meteoric fall from November 2021 highs. In just over half a year, the total cryptocurrency market cap has fallen to less than a third of its peak value.
Solend's vote was done to give it a chance to beat margin-triggered trading bots that, presumably, would act in the interest of Solend's whale and sell SOL tokens as fast as possible.
The OTC trade Solend would perform on behalf of the whale would involve selling to a specific buyer at an agreed upon price.
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A second vote, held less than a day after the first, invalidated the initial policy change and garnered more support than the first.
In addition to stripping the ability for Solend to seize the whale's account, it also increased governance vote time to one day, and gives Solend time to "work on a new proposal that does not involve emergency powers to take over an account."
Celsius, another crypto lending platform, has arguably been at the heart of some of the latest dips in the value of cryptocurrency. Like Solend, Celsius allows users to deposit funds that others can borrow, and last week it froze all activity.
Celsius on Sunday updated its users, saying this was ongoing, and that Celsius was also freezing activity on its Twitter Spaces and pausing Q&A sessions. ®