by @Golven0 and @FriedWagyuu

TL;DR

• A proposal on Solend was created to take over one whale’s assets to allow Solend Labs to liquidate the whale’s position with OTC or other centralized ways
• The proposal only gave users 6 hours to vote and only 1% “Yes” votes were needed for the vote to pass
• Most of the “Yes” votes came from one $SLND whale who transferred the tokens to a new wallet for the sole purpose of casting the vote
• A second proposal was passed to invalidate the previous proposal and adjust the voting time to 1 day

What is Solend

Solend is the largest borrowing and lending protocol on Solana, which also occupies the largest TVL on Solana Network with $458.46 million, according to Defi LIama (June 20). Users can earn interest, borrow assets, and leverage long and short positions with Solend similar to protocols like Aave and Compound.

What Happened

SLND1: Mitigate Risk From Whale

On June 19, the first governance proposal for the Solend DAO has been proposed and successfully passed. The proposal aims to mitigate the risks posed by large whales and grants Solend Labs “emergency powers” to liquidate the whale’s vulnerable assets.

Reasons according to the proposal:

• Whale address possesses 95% of Solend’s SOL deposits and 88% of USDC borrowings.
• The liquidation price is $22.3 and the liquidation position is up to 20% of the borrowings (about $21M). If liquidated directly on DEX, the market will not be able to absorb the impact.
• In worse cases, the hit may cause bad debt for Solend and may also cause the Solana network to go down due to liquidation bots keep sending transactions.
• Many users have withdrawn their assets from Solend due to possible risks, causing USDC and USDT utilization in the main pool to spike to 100%. This means that depositors are unable to withdraw their funds and cannot close their positions.

What Solend Labs have done:

• The Solend team tried to contact the Whale with no responses
• Adjusted borrowing rates APY for USDC and USDT to their max, using dynamic rate models.
• Exploring other methods to close positions smoothly (OTC, centralized AMM protocol liquidity, placing bids on DEX, etc.), however, the risk cannot be reduced

The whale’s details:

• 5.7M SOL deposited ($170M)
• 108M USDC and USDT borrowed
• 25% of TVL
• 95% of SOL deposits (Main Pool)
• 88% of USDC borrows (Main Pool)
• A liquidation price of $22.30
• The last on-chain activity from the whale was 12 days ago

What went wrong in this proposal:

• There is only one solution
• The proposal gave users less than 6 hours to vote and only 1% of the votes were needed for the proposal to take effect.
• Approximately $730,000 (1.1 million * $0.66) worse of Solend token voted in favour of the proposal to control over $100 million in user assets.
• 98% of the “Yes” votes came from an unidentified whale. This wallet address was transferred 1,014,210 tokens, which were transferred back after the vote.

SLND2: Invalidate SLND1 and Increase Voting Time

A few hours ago (June 20), Solend Labs were aware of the user opposition. The second DAO proposal was launched and passed with the following terms:

• Invalidate the last proposal
• Increase governance voting time to 1 day
• Work on a new proposal that does not involve emergency powers to take over an account

User Reactions

There are mixed feelings about the proposed solution:

1. Solend is protecting the interests of other customers and the network, which is helping to reduce the maximum loss of the big whale as well.
2. Solend Labs’ proposal to take over users’ wallets is against the idea of decentralization and will bring doubt to the safety of DeFi.

Our Opinion

Solend Labs’ proposal to take over user wallets so that clearing can be executed via OTC transactions is a no-no for the following reasons:

1. Allowing centralized companies to take over a user’s fund goes against the principles of decentralization and trustlessness that DeFi is based on.
2. Solend protocol is unable to handle bad debts properly, making it impossible for people to trust.
3. DeFi is still in its early stages and it is critical that the industry maintains a good reputation. Solend may lead users to fear about DeFi and questions about the nature of decentralization.

Final Thoughts

Ideally, what we all seek and need is truly decentralized finance, which is not CeFi or TradFi. Users should not have to trust any entities. The protocols and their models should be designed to solve all problems, instead of having to rely on the core team. The DAO’s governance model should also be improved to avoid “centralized” voting like what happened in SLND1.