The logo of the Solana cryptocurrency platform.
Jakub Porzycki | NurPhoto via | Getty Images
Decentralized financial platforms are doing all they can to limit the fallout from a massive cryptocurrency sell-off.
Solend, a lending platform built on the Solana blockchain, has attempted to take control of its most important account, a so-called “whale” investor that it believes could significantly influence market movements.
Solend users have since voted to block the move.
What is Solend?
Solend is a DeFi application that allows users to borrow and lend funds without having to go through intermediaries.
Solend said a single whale is sitting on an “extremely large margin position”, potentially endangering the protocol and its users. “In the worst case, Solend could end up with a bad debt,” the company said. “It could cause chaos, straining the Solana network.”
The affected account had deposited 5.7 million sol tokens in Solend, representing more than 95% of the deposits. Against this, he was borrowing $108 million in USDC and ether stablecoins.
If the price of soil fell below $22.30, 20% of the account 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 count, a move unprecedented 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-exchange transactions – to avoid a possible cascade of liquidations.
DeFi applications under pressure
The move sparked a backlash on Twitter, with some questioning Solend’s decentralization. One of the core principles of DeFi is that it is intended to remove centralized institutions like banks.
On Monday, however, Solend users were asked to vote on a new proposal to override the previous vote. The overwhelming majority of the community voted in favour, with 99.8% voting “yes”.
The debacle is a sign of how DeFi — a sort of “Wild West” where users take charge of peer-to-peer transactions and lending — has been 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 for staked ether, a derivative token causing chaos in the crypto market.
StETH is believed to be worth the same as Ether, but it trades at an increasing discount to the second-largest cryptocurrency. Getting in and out of stETH isn’t easy, which has led to liquidity issues at big crypto lenders and hedge funds like Celsius and Three Arrows Capital.