- The controversial move by DeFi lender Solend has sparked yet another debacle in the crypto market.
- Fears have arisen that Solend will collapse and cause Solana to sink as cryptocurrencies sales skyrocket.
- The platform was forced to submit to a governance vote to recast the decision allowing it to take control of risky wallets.
The latest catastrophe to take place in the crypto market, causing the price of Bitcoin to plunge below $20,000 once again, came about in relation to the liquidity problems experienced by the Solend platform. The decentralized finance (DeFi) company, based on the Solana blockchain, attempted to set up a playpen in order to try and avoid bankruptcy.
A week prior, U.S. lender Celsius Network fell in trouble, and was forced to freeze withdrawals and other user operations in reponse. The resulting chaos set off alarms across the market, leading to mass hysteria and sell offs, and ultimately causing the Solend issue.
To combat the issues it faced, Solend Labs put measures in place to attempt the takeover of a ‘whale’ account, the largest on the platform, alleging that it would have a decisive influence on market operations.
Community Criticism and New Governance Vote
The DeFi project made an unusual move, putting a governance vote to Solend members, the ultimate decision of which was passed on Sunday, giving the company “emergency powers” to assume control of the whale’s wallet.
Solend, through, the governance vote titled ‘SLND1: Mitigate Whale Risk’, was cleared to proceed, and, with the newly instated emergency powers, the platform gained full access to the whale wallet, permitting it the full use of funds to avoid liquidation.
The company claimed that a drop in the price of Solana (SOL), and the potential liquidation of the whale account, would leave it with “bad debt”, and would therefore put avoidable pressure on the Solana network. Following the approval of the proposal, members of the community reacted with harsh criticism, as many claimed that it was contrary to the spirit of DeFi and decentralization, not to mention being openly illegal.
On the Flipside
- The Solend team was forced to put the decision to a new vote after the previously approved proposal (SLND1) was invalidated by a 1,480,264 votes (99.8%) in favor counter-proposal.
- Solend will now have to find a different solution, one that does not involve the appropriation of an account.
- The troubled platform will continue to stew in the pressure as the voting time for the new proposal received a one day extension.
The Solend account held 5.7 million Sol tokens, representing approximately 95% of the platform’s total deposits. The user had been using the account to request loans of up to $108 million in USDC and ether stablecoins.
Pressure on DeFi applications has only increased of late, and the mounting crisis of confidence has deeply impacted lending platforms, leading to the further collapse cryptocurrencies. The value of DeFi platforms, cryptocurrencies, and the market in general have tumbled heavily over the last two weeks.