Decentralized financial lending platform Solend tried to fend off the effects of the crypto meltdown over the weekend when 97.5% of its users voted to give it emergency powers to liquidate its biggest account customer. A second vote held today overturned the first.
Despite our best efforts, we were unable to get the whale to reduce its risk, or even come into contact with it.
Solend, which allows users to deposit cryptocurrencies to lend to other users, has a “whale” responsible for 95% of the SOL cryptocurrency deposited on its platform (worth 107 million of dollars). The same user borrowed 88% of the available USDC, a stablecoin pegged to the US dollar. All told, the account borrowed around $108 million in USDC and Ethereum. According to Solend websiteit loaned a total of $195 million in crypto assets.
“Despite our efforts, we were unable to get the whale to reduce its risk, or even to come into contact with it,” Solend said in his voting proposal.
The successful vote gave Solend the option to liquidate the user’s account via OTC trades if SOL fell to $22.30. It has come dangerously close to doing so recently – SOL is currently trading in the $35 range but fell to $26 last week as other cryptocurrencies fell.
At its peak alongside other cryptocurrencies in November 2021, SOL hit $260. Given its drop in value and its proximity to the point of liquidation, it’s understandable why Solend might be worried.
“CeFi at its best”
Comments on the governance page regarding 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) avoids intermediaries, banks and other institutions vested with authority that make centralized decisions. Ideally more democratic in practice, defi has proven to be ripe for the picking by cybercriminals. The unregulated nature of the challenge and the cryptocurrency was also a key part of its meteoric fall from the highs of November 2021. In just over six months, the total market capitalization of the cryptocurrency fell to less than a third of its maximum value.
Solend’s vote was done to give it a chance to beat margin-triggered trading bots that would presumably act in the interests of Solend’s whale and sell SOL tokens as fast as possible.
The OTC trade that Solend would conduct on behalf of the whale would imply sell to a specific buyer at an agreed price.
A second vote, held less than a day after the first, invalid the initial policy change and garnered more support than the first.
In addition to depriving Solend of the ability to seize the whale account, it also increased the governance voting time to one day and gives Solend time to “work on a new proposal that does not involve powers urgently to resume an account”.
Celsius, another crypto lending platform, has arguably been at the heart of some of the latest declines 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 is continuing, and that Celsius is also freezing activity on its Twitter spaces and suspending Q&A sessions. ®