Potential SOL liquidation on Solend Protocol puts Solana at risk

Key Takeaways:

  • Solend Protocol risks SOL liquidation after a large whale bet.
  • The community runs a vote to prevent the risk, but meets a backlash.
  • Decentralization crisis averted with second vote, but liquidation risks persist.
Solana, SOL liquidation Solend community, solend protocol
image form medium.com

Yerevan (CoinChapter.com) – Ethereum competitor Solana saw a billion dollars of SOL liquidations on the line as a whale deposited $170 million in SOL on lending/borrowing Solend Protocol and borrowed $108 million in Ethereum (ETH) and stablecoin USDC.

A deeper look into the situation will clarify if the Solana platform is at risk.

SOL liquidation ahead?

In detail, the whale in question accounted for 95% of the SOL deposits, and 86% of USDC borrows. If the SOL liquidation occurs, it could potentially skew the supply/demand on Solend Protocol out of control.

The founder of Solend Protocol, an anonymous developer under the pseudonym Rooter, commented on the situation, voicing their concerns.

There’s some worry that such a sale could quickly send the price down further, causing other accounts to become underwater. Solend Protocol has a treasury with $20M that can help repay bad debt. However, in a worst-case scenario (which is what we want to be ready for), this may not be enough

said Rooter.

Also read: Solana price jump more than 41% in a week after latest upgrade.

They also added that the SOL liquidation price would stand at $22.27. Meanwhile, the token price on Jun. 21 stood at $37.7. The above-liquidation value stove off the FUD for the time being. However, concerns about the instability of the Solana ecosystem persisted.

What’s the solution for Solend Protocol?

Crypto analyst and investor Miles Deutscher put out a lengthy tweet to clear the SOL liquidation prospects. He mentioned that the Solend protocol representative reached out to the whale, attempting to bargain a solution.

The whale will always present a systemic risk to Solend and its users. Letting a liquidation of this size to happen on-chain is extremely risky.

commented the Solend Protocol.

Also read: Solana (SOL) follows crypto rally reversal, drops 16.67%.

However, the whale never responded. The account’s passivity prompted Solend Protocol to issue a proposal to “grant emergency power to temporarily take over the whale’s account,” so the SOL liquidation can be executed OTC.”

Solend community overruled the proposal. Or did it?

The Solend community met the proposal with a Twitter backlash. Some users questioned Solend’s decentralization. Meanwhile, DeFi’s decentralized nature was the sole method of opposing centralized institutions.

The Solend community voted on the proposal. They overwhelming voted in favor, with 99.8% voting “yes.” However, one wallet allegedly paid $700,000 for additional voting power, ultimately making up 90% of votes, raising many eyebrows.

Also read: Could Solana (SOL) pull off a 65% rally despite another network halt?

Solend community overruled the proposal.
image from twitter.com

Solend Protocol is still not decentralized enough

The fate of $270m in user assets are effectively being decided by a single entity. This is a fundamental flaw in the system, as voting power is decided by your DAO holdings.

said Deutscher.

Solend Protocol quickly rushed to fix its mistake by invalidating the first vote. Instead, they issued a new proposal to increase governance voting time to 1 day.

We recognize that a voting time of 1 day is still short. But we need to act swiftly to address the systemic risk and the fact that normal users can’t withdraw USDC.

further commented Rooter in a blog post.

Also read: Over 7.5M failed transactions recorded on Ethereum blockchain in June.

The Solend community feared SOL liquidation and grappled with the proposals amid a larger bear market. Meanwhile, should Solana collapse like Terra, 3AC, and Celsius, it could spin the whole DeFi market out of control, putting other protocols in danger.

The SOL token held its ground at over $37 on Jun.21, staving off the risks. However, Solend’s questionable actions left a sour taste in the mouths of many supporters.

SOL liquidation, Potential SOL liquidation on Solend Protocol puts Solana at risk

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