Solana DeFi protocol Solend is going back to the ballot box with a flash vote over whether to invalidate Sunday’s “emergency powers” plan to wrest control of the platform’s largest account: a $100 million+ whale on the verge of a potentially chaotic on-chain liquidation.
Solend, a crypto borrowing and lending service for tokens such as SOL and USDC, is giving its governance token holders six hours to vote on the proposal. Voting “yea” on SLND2 would: 1. Invalidate the first vote; 2. Extend voting periods to one day’s length; 3. Begin work on a new, less drastic “emergency powers”-free solution to the whale wallet crisis.
“We recognize that a voting time of 1 day is still short,” a blog post by co-founder Rooter said, “but we need to act swiftly to address the systemic risk and fact that normal users can’t withdraw USDC. We ask our community to be active in governance in the next few days. Voting time will be revisited in a future proposal.”
The liquidation crisis
The anonymous wallet at the heart of the crisis had deposited 95% of Solend’s entire SOL pool and represented 88% of USDC borrows. But Solend’s single-largest user came dangerously close to a massive margin call with SOL’s cratering price. If SOL hit $22.30, the protocol would automatically liquidate up to 20% of the whale’s collateral.
Protocol developers feared that multi-million dollar liquidation would flood Solana decentralized exchanges with too much sell pressure and even jam the network. They pushed through a vote to commandeer the whale wallet and execute its liquidation more seamlessly via OTC.
Crypto Twitter erupted. An attorney called it “illegal;” a popular personality scoffed at the low turnout repo; a chain founder derided the seat-of-pants governance hack job; a competing lending service on Ethereum said it was “an indictment of DeFi on Solana.”
“The crazy backlash” on Twitter and in the press forced Solend back to the drawing board, pseudonymous founder Rooter told CoinDesk in a telegram message. SOL price recovery has granted a bit of liquidation wiggle room, Rooter said, but the issue of what to do about the nonresponsive whale wallet remains.
“$120M worth of USDC is stuck in the protocol that average users can’t withdraw,” Rooter said (the whale’s loans alone have locked up $108 million in value).
The new vote had not yet passed at press time early Monday. Like the previous one, it will require a 1% quorum, a difficult bar to reach when token whales such as VCs are hesitant to tip the scales. Indeed, the previous proposal only passed because a single account stepped in to juice turnout.
“I guess one silver lining is [because] of all the (negative) attention we’ve gotten, participation should be much higher than average,” Rooter said.