A new proposal put forward by Solana (SOL)-based borrowing and lending service Solend to disapprove the takeover of the protocol’s largest account following huge backlash from the community has passed with an overwhelming majority of votes.
The new proposal, dubbed SLND2, asked to invalidate SLND1, the original proposal that had approved the takeover of one of the whale wallets at risk of liquidation.
“We’ve been listening to your criticisms about SLND1 and the way in which it was conducted,” the proposal said. “The price of SOL has been steadily increasing, buying us some time to gather more feedback and consider alternatives.”
More specifically, the SLND2 proposal invalidates the previous proposal, increases governance voting time to one day from six hours, and suggests “work on a new proposal that does not involve emergency powers to take over an account.”
The majority of voters supported the new proposal. On Monday morning, with the voting finished, 99.8% of the votes have been cast in support of SLND2. Therefore, in regards to the approval quorum, the site says: “required approval achieved.”
Meanwhile, the original proposal, SLDN1, had granted Solend “emergency powers” to liquidate the whale’s vulnerable assets via over-the-counter (OTC) trades to avoid “putting Solend protocol and its users at risk.”
The Solend “whale” had deposited SOL 5.7m onto Solend, or over 95% of the main pool’s deposits, and borrowed USD 108m worth of USDC and USDT, according to the proposal, which claimed that this “extremely large margin position” was getting close to a catastrophic on-chain liquidation.
The whale’s account would become liquidatable for up to USD 21m if the price of SOL drops to USD 22.30, according to the old proposal.
“Despite our efforts, we’ve been unable to get the whale to reduce their risk, or even get in contact with them,” the proposal said. “With the way things are trending with the whale’s unresponsiveness, it’s clear action must be taken to mitigate risk.”
The SLDN1 proposal was controversial in several ways. In the first place, it had a voting period of less than six hours, and reportedly the voting site was down for half of that period. Moreover, one single unidentified whale accounted for 98% of the ‘yes’ vote.
“A DAO [decentralized autonomous organization] was created specifically to be able to hold a sham vote, where the system was closed for voting for a long time, and then a single large wallet voted yes to this proposal,” Emin Gün Sirer, founder and CEO of Ava Labs, claimed.
Congratulations, gentlepeople of Solend, you've reinvented TradFi, but with more steps and more frequent and unpredictable interruptions.
— Emin Gün Sirer🔺 (@el33th4xor) June 19, 2022
The incident also once again stirred up discussions around the “decentralized” nature of crypto, with some arguing that this would damage the overall image of decentralized finance (DeFi).
“Allowing a company to take over users’ wallets in order to liquidate them goes against the principles of decentralization and self-sovereignty that DeFi is built on,” one Twitter user said, noting that it “would set a bad precedent in DeFi.”
On the other hand, David Schwartz, Chief Technology Officer of Ripple, claimed that decentralized systems “are brutally majoritarian.” “A central counterparty can be bound by law. Without that, anything people agree to change can be changed,” he said.
Right. Solend isn't decentralized. So really neither the question nor my answer apply to Solend. My point is that decentralized systems are brutally majoritarian. If you don't like that, stick to centralized systems that have legally enforced rules.
— 𝙳𝚊𝚟𝚒𝚍 𝚂𝚌𝚑𝚠𝚊𝚛𝚝𝚣 (@JoelKatz) June 20, 2022
It is yet more evidence of centralisation, when things go wrong they get more centralised. But I think they argue the system will auto-liquidate the whale into a low liquidity DEX, slip as much as -46% due to size, so that it's in both the whale's and other participants interest.
— Adam Back (@adam3us) June 20, 2022
At 7:36 UTC on Monday morning, the ninth coin per market capitalization, SOL, is trading at USD 32.2, up by 9.4% over the past 24 hours and 4.8% in a week. Overall, it’s down 35% in a month and 8.6% in a year.