Is decentralized lending possible? Solana protocol Solend prevents liquidation by allowing users to vote to take over funds.

The largest lending protocol on the Solana public chain, Solend, is taking precautions against potential risks in the volatile market to safeguard the overall security of the protocol. It has initiated a controversial vote to propose raising liquidation thresholds and gaining emergency control over the account for "off-chain liquidation."

Decentralized finance (DeFi) may not always be ideal in extreme market conditions. Solend, the largest lending protocol on Solana, has indicated that a particular user currently holds the largest lending position, and if the price of SOL coin drops rapidly, the scale of liquidation may impact the protocol's operations.

Solend mentioned that this user has deposited around 5.7 million SOL, equivalent to about $170 million, and lent out a total of $108 million in USDC and USDT. This single user accounts for 25% of the locked assets. Within the main liquidity pool, this user holds 95% of SOL deposits, and 88% of USDC has been borrowed by this user. The estimated liquidation price for SOL is 22.3.

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What Problems Will Arise from the Liquidation of a Whale Account?

When collateral depreciates to a certain extent, it will be sold to repay the loan. What issues might this cause?

Solend stated that if SOL falls to 22.30, the whale account will begin to liquidate up to 20% of the loan, approximately $21 million. However, since liquidations typically take place on decentralized exchanges, the market may struggle to absorb such a large volume. In extreme cases, Solend may face uncollectible bad debts, potentially impacting the Solana network. With active liquidators continuously sending liquidation functions to the network, this could even lead to Solana crashing. Users, concerned about risks, are withdrawing liquidity, causing the utilization rate of stablecoin major liquidity pools, USDC and USDT, to reach 100%, with all stablecoins being lent out. This will prevent positions collateralized with USDC or USDT from being closed.

Solend: No Perfect Solution

Solend mentioned that the last on-chain activity of this whale user was 12 days ago. They have attempted to contact the user but have not received a response. They have taken all possible measures, such as adjusting the dynamic borrowing rates of USDC and USDT to the highest and contacting market makers to facilitate smooth closures through methods like OTC trading, DEX, and hedging. However, these measures may still not be enough to avoid repercussions.

As a result, the official decision was made. They proposed a governance proposal to impose special margin requirements of 35% for large whales with loans exceeding 20% of the total borrowings and grant Solend emergency powers to take over the whale account for OTC trading if needed.

While this decision essentially deprives the user of financial autonomy, the officials believe it is necessary for the safety of all users, the protocol, and the Solana network, acknowledging that there is no perfect solution. The proposal was ultimately passed, sparking discussions on centralization.

Solend Team Overturns Previous Proposal on 6/20 Afternoon Update

Following the controversy surrounding the emergency takeover of the whale account by the Solana lending protocol Soland, they have heard the community's criticisms and feedback. Therefore, they have proposed to overturn the previous proposal and reintroduce a version without emergency takeover powers. The proposal includes:

• Invalidating the previous proposal
• Extending the governance proposal voting time from 6 hours to 1 day
• Proposing a new solution to the problem without taking over the whale wallet

"We understand that a 1-day voting time is still short, but we need to act swiftly to address systemic risks and the fact that regular users cannot withdraw USDC," stated the Solend team.

The proposal has passed with a high majority after thevote, and the team encourages active community participation in governance, with new proposals expected to emerge in the coming days.

During the voting, it was noted that the whale user with wallet addresses starting with 6HFx cast significant approval votes in both rounds. This implies that while initially in favor of taking over the whale assets, they later opposed it.

Regarding this, 6HFx stated that he is indifferent to the hate speech on Crypto Twitter, emphasizing that saving retail investors' $120 million is crucial, rather than adhering to DeFi principles, allowing some whales to gamble away 9-digit positions, causing significant ecological impact. However, if the community can find a better solution and the market allows some time, he is willing to support this new proposal.