Decentralized finance platforms are going to excessive lengths to restrict the fallout from a sell-off in cryptocurrencies.
Solend, a lending platform constructed on the Solana blockchain, tried to acquire management of its largest account, a so-called “whale” investor that it mentioned might considerably affect market actions.
Solend’s customers have since voted to block the transfer.
Solend is a DeFi app that lets customers borrow and lend funds with out having to undergo intermediaries.
Solend mentioned a single whale is sitting on an “extremely large margin position,” doubtlessly placing the protocol and its customers in danger. “In the worst case, Solend could end up with bad debt,” the agency mentioned. “This could cause chaos, putting a strain on the Solana network.”
The account involved had deposited 5.7 million sol tokens into Solend, accounting for more than 95% of deposits. Against that, it was borrowing $108 million in the stablecoins USDC and ether.
If sol’s price sank below $22.30, 20% of the account’s collateral — about $21 million — is at risk of being liquidated, Solend said. Sol was trading at a price of $34.49 on Monday.
On Sunday, Solend passed a proposal granting it emergency powers to take over the whale account, an unprecedented move in the DeFi world.
Solend said the measure would allow it to liquidate the whale’s assets via “over-the-counter” transactions — as opposed to on-exchanges trades — to avoid a possible cascade of liquidations.
DeFi apps under strain
The move led to a backlash on Twitter, with some questioning Solend’s decentralization. One of DeFi’s core tenets is that it’s meant to do away with centralized institutions like banks.
By Monday, however, Solend’s users were asked to vote on a new proposal to overturn the earlier vote. The community overwhelming voted in favor, with 99.8% voting “yes.”
The debacle is a sign of how DeFi — a kind of “Wild West” where users take it on themselves to conduct trades and loans peer-to-peer — has gotten caught up in the crypto meltdown.
MakerDAO, the creator of a dollar-pegged stablecoin called DAI, recently disabled a feature that allowed traders to borrow DAI against staked ether, a derivative token causing mayhem in the crypto market.
StETH is meant to be worth the same as ether, but it’s been trading at a widening discount to the second-biggest cryptocurrency. Moving in and out of stETH isn’t easy, and that’s resulted in liquidity issues at large crypto lenders and hedge funds like Celsius and Three Arrows Capital.