Jun 22, 2022
Solend Situation — What’s happening?
You probably heard about the @solendprotocol controversy, but do you know what actually happened?
Let’s dive into it…..
Solend is a lending protocol built on the Solana network that offers users the ability to deposit $SOL to borrow other assets like $USDC and $USDT.
A very large whale utilising these attractive offerings had deposited 5.7m $SOL into Solend at a price of $22.30 equalling around $160m worth deposit.
With that 5.7m $SOL deposit the whale then borrowed 108m worth of stable coins, the majority being $USDC.
The concern here is that while markets have been trending down recently, price is edging towards the crucial level of $22.30 where liquidations of the position will begin. A liquidation event of this size would create the threat of putting user funds in jeopardy, combine this with recent Solana outages and instability, there would be valid reason to be worried.
To mend these concerns Solend attempted to contact the whale to initiate negotiations around a solution, claiming that this whale presented large risks to their protocol and its users, and that an on-chain liquidation event of this magnitude would pose a high risk.
Unfortunately for them, the whale did not respond.
This led Solend to propose a DAO vote which would allow the protocol to have ‘emergency power’ to control this whale’s funds so that a liquidation could be handled off-chain.
Obviously, this was met with extreme controversy from the crypto community as it goes against the very essence of Solend themselves and the entire DeFi space. Solend (a centralised figure) taking control over this whale’s account is the exact opposite of the decentralised nature we are all working towards.
Understandably this proposal was met with outrage from the entire community that supports the ‘De’ in DeFi, prominent figures like Binance CEO: CZ, @Cobie, AVAX founder @el33th4xor among many others took to Twitter to discuss this decision.
Moving on, withstanding all this public outrage about the proposal going against decentralisation, the vote still passed with 97% voting Yes. Crazy.
Another controversial factor that played into this vote was that a single person was able to provide 1million of the Yes votes.
https://twitter.com/web3isgreat/status/1538548028872826880
Making over 90% of the votes belong to a one user. Meaning, the decision regarding $270m of funds was being decided by this user.
https://twitter.com/HsakaTrades/status/1538546664952193024
This begs the question; Is it really decentralised if one person could have such vast voting power and have the ability to decide the outcome of thousands of others? In short, no.
Of course, Solend comes to the rescue once again, invalidating the first vote and issuing a new proposal which changed the voting time to 1 day.
BUT again, even if there were concerns and problems with the initial proposal, how can it be a true DAO if proposals can be thrown away.
The situation is kind of a double-edged sword, on one side the proposal was easily exploitable, allowing a single user to take control of the vote, which is clearly unfair. On the other side, invalidating this proposal takes away the whole point of having a DAO.
Lastly, Solend finally got in contact with the whale and convinced them to spread the funds across multiple lenders to reduce risk and lift part of the threat from Solend.
So was sacrificing the foundation of a decentralised protocol worth saving it from a potential liquidation event? Let us know your thoughts.
Thankfully for vEmpire, this would have never happened.
Our DDAO structure wouldn’t have allowed for this situation to take place. This is because in our proposals, voters are limited to 1 vote per wallet permitting that they have above the 1k $VEMP threshold.
Therefore, one user cannot take majority control over a proposal, it is in the hands of the majority.
We have made it significantly harder for the system to be abused by bots or a single person, our fundamental democratic nature supports decentralisation and gives power to the community.
