Solend Liquidates Largest Account to Prevent Solana 'Chaos'

Users of the Solana Protocol “Solend” voted Sunday to take over the platform’s largest account in order to liquidate its position , claiming that inaction could cause “chaos.”

The account at the center of the controversy deposited 5.7 million Solana (SOL) on the platform — worth $170 million as of Sunday — as collateral for a $108 million loan, taken in the form of USDC and USDT. The position accounted for 95 percent of SOL deposits on Solend (SLND), and 88 percent of its outstanding loans. The position was set to be liquidated if SOL reached a price of $22 — nearly 30 percent less than its $34 price as of Saturday evening, and a little more than $3 below a low in the $25 region on Tuesday.

Developers said they had attempted to reach the “whale” behind the position, but that they had been unsuccessful. “We’ve attempted to get in touch with the whale via our networks and publicly through Twitter,” Solend’s team wrote in a Sunday message asking SLND holders to vote on the matter, noting they had “sent the whale an on-chain message and posted about it on Twitter for amplification.”

“As you may know, the largest user on Solend … has an extremely large margin position that is putting Solend protocol and its users at risk,” the team said. “If SOL drops to $22.30, the whale’s account becomes liquidatable for up to 20 percent of their borrows (~$21M). It’d be difficult for the market to absorb such an impact since liquidators generally market sell on DEXes [decentralized exchanges]. In the worst case, Solend could end up with bad debt. This could cause chaos, putting a strain on the Solana network.

“Liquidators would be especially active and spamming the liquidate function, which has been known to be a factor causing Solana to go down in the past,” they added. “Due to concerns about risk, many users have withdrawn, causing USDC and USDT utilization in the Main Pool to spike to 100 percent. This means depositors can’t withdraw, and positions collateralized by USDC or USDT can’t be liquidated.”

They said they had been in contact with market makers to explore options “for ensuring the liquidation happens gracefully” in an over-the-counter deal that would not rely on an automated process, and said they wanted permission from SLND holders to close his position. “At this size, the whale will always present a systemic risk to Solend and its users,” the team said. “They’re showing no signs of action, and it seems inevitable that they’ll eventually allow themselves to be liquidated.”

Voting — which took place through a decentralized autonomous organization (DAO) that Solend’s team frantically formed on Saturday evening — concluded after six hours, with 97.5 percent of votes in favor and a participation rate of just 1.13 percent.

Public Reception

Observers of the fiasco fell into two camps. Those who supported the move speculated the “whale” had been intentionally seeking to derail SLND and SOL with shorts aimed at profiting from the tokens imploding. Critics pointed out that using a hastily-formed DAO to close the whale’s position $10 before it due for liquidation was hypocritical for a platform themed around “decentralization.”

“It’s a bomb, likely intentional,” one user wrote on Twitter. “It was voted to be diffused. This one is really tough, it was a ‘decentralized’ process, it needed to happen for the safety of everyone, but I’m conflicted. All I want to know is, who has the better solution ? Honestly want to know.”

“Absolute comedy,” Bitcoin Magazine’s Dylan LeClair opined.”Solend, a supposed ‘decentralized”’lending protocol built on Solana has ‘voted’ to take over a whales account with emergency powers to eliminate the chance of forced liquidation. ‘Decentralized’ in name only.”

Pseudonymous but prominent commentator Cobie facetiously offered a third approach. “New vote idea,” he wrote. “Instead of liquidating the solend whale, everyone that votes yes to this proposal gets to keep the whales’ funds instead. Solend will have a lot of bad debt but the token holders that voted yes will be rich. LFG!”