Solana Lender Solend Is Facing A Whale Liquidation Crisis
Solana-based decentralized finance (DeFi) lending protocol Solend tried to gain access to a whale account. The account in question is not closing its large margin position. It has 5.7 million sol tokens into Solend, accounting for more than 95% of deposits. As per Solend Labs, if Solana (SOL) drops in price and the whale gets liquidated, the lending platform may end up with "bad debt”. To avoid this potential risk that could cripple Solana's network and create chaos, the governance vote proposal SNLD1 was made and accepted to give "Emergency Powers" to Solend Labs. This would help them execute the liquidation process Over-The-Counter (OTC). Soon after they faced backlash from the community as so many people started condemning this act on Twitter. As per some users, it's better to get off the platform because Solend team can takeover any account whenever they want. Although Solend Labs did not vote on the proposal yet it doesn't change the fact that it is not as decentralized as they claim to be.
Another proposal SNLD2 was made to avoid the bad PR to cancel SNLD1 and it got accepted quickly. Good thing is that they did not take the direction that Juno Community faced a few months ago due to its bad airdrop design.
What Is Solend?
Solend is the leading algorithmic, decentralized protocol for lending and borrowing on Solana Network. Anyone can earn interest by lending their crypto assets and using their deposits as collateral for borrowing without any intermediary. Although it is faster and cheaper than AAVE and Compound, it definitely isn't as decentralized and robust. They are known to handle such transactions in the past without affecting the price of their native token or without burdening up the chains they support.
Liquidation Problem Still Exists
Solend is in a fucked up situation right now. They cannot risk taking over any account now because it could seriously hurt their reputation in DeFi community beyond repair. At the same time, the liquidation problem still exists. They need to find a workaround to avoid this. If the liquidation happens on-chain, it could simply dump SOL's price, also causing the chain to halt for the 100th time. Solend DEX liquidity isn't deep enough to handle such a large transaction. It could lead to liquidity spammers taking the advantage and further worsening the situation.
This is why it is very important to invest in protocols that think about worst-case scenarios and build proper ways to address them. This bear market is filtering out such projects and exposing their loopholes. What do you guys think? Comment below!
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