Solend, a Solana-based loan protocol, had planned to impose extra margin criteria for one user, but after receiving critical criticism, they backed down and are looking for alternatives.
Users of the Solana-based lending and borrowing protocol Solend voted in favor of the platform’s stewards in order to reduce the dangers of liquidation posed by Solend’s largest whale.
The whale is borrowing roughly $108 million in USDC and USDT against $170 million in SOL put as security in the protocol’s main pool. For the lending platform, this accounts for around 88 percent of USDC borrowings and 95 percent of SOL deposits.
Solend Labs will be able to take over the whale’s account in order to perform an over-the-counter trade if the price of Solana’s native token SOL falls below $22.30 if the plan is approved by the Solend-based decentralized autonomous organization’s (DAO) initial governance proposal. However, in response to public criticism, a second signaling plan was proposed to reverse the first.
The first proposal offered developers permission to establish extra margin restrictions for a huge whale borrowing more than 20% from the protocol’s principal pool with a 35 percent liquidation threshold already in place.
More than 1.15 million votes (approximately 97.5%) were cast in support of authorizing the decision, compared to 30,101 votes against (2.5%). However, data from Solana-based Realms shows that a single account, representing 1% of all users, cast over 1 million affirmative votes, revealing a stark centralization in the decision-making process that has drawn public criticism, despite the fact that the Solend team claims it was not involved in the governance process.
Due to the account’s “extremely large margin position” close to liquidation, the whale account poses a systemic risk to the protocol, Solana’s network, and its users, according to Solend in a message published before the vote on Sunday.
If SOL falls below $22.30, the whale’s account might be liquidated for up to 20% of their borrowings, which are estimated to be worth $21 million, according to Solend.
Solend said it was put to a vote to take precautionary action over the account after repeated attempts to contact the whale. The action raises concerns about the principles and spirit of decentralized finance, which aspires to eliminate middlemen and empower financial self-sovereignty by removing middlemen.
The second proposal, which nullifies the first, received more than 1.48 million votes, or roughly 99.8% of all votes cast in favor and 0.2 percent of no votes cast.
However, the new plan hasn’t stopped users from mass-withdrawing their assets due to concerns about the risk, driving USDC and USDT utilization in the protocol’s primary pool to reach 100%, according to Solend’s post. The remaining depositors are unable to withdraw their funds as a consequence.