Imagine if you will a decentralized lending protocol voting to take control of someone’s wallet through a governance vote then after discovering how much blowback there is from this vote they hold another vote to invalidate the previous vote. Yes, this actually happened and on Solent but of course there’s a lot more to this story.
Let’s break it down shall we now for those unfamiliar solend is a defy lending protocol built on the Solana blockchain. It’s the most popular lending protocol on Solana and before the terror collapse. It had a TVL of almost a billion dollars that has since shrunk to million dollars now.
As we’ve seen in the past two weeks the crypto markets have been through an immense amount of stress funds have gone bust and some c5 lenders have paused their withdrawal it has to be frank been uglier than a baboon’s backside and if I’ve offended anyone in the baboon community with that analogy well cancel me you red ass freaks. I digress naturally these market conditions led to a collapse in the price of Seoul and solend was in a particular pickle because of a massive whale who’d borrowed over 100 million dollars in stable coins and put up 170million dollars of Seoul as collateral.
Now, this soul was coming increasingly close to liquidation and the Solend team was trying to contact said whale. To get them to pay down the loan and avoid that liquidation. Why were they doing that you ask well if the price reached the liquidation level then the protocol would initiate those on-chain liquidations. The only problem was that the team was worried that this mass liquidation event could have serious implications for the protocol and by extension user funds.
That’s because the liquidators would market sell 21 million or 20 percent of the borrowed amount on dexes and there were concerns that as the liquidators spammed the liquidate function this could risk bringing down the Solana blockchain. You can insert your witty remark about how that is not unusual here.
So the Solent devs were faced with a choice put user funds at risk and potentially crash the Solana blockchain or do the unthinkable vote to control a single user’s funds. Right in that sweaty spot between a rock and a hard place.
Now of course if the Solana network was more robust and therefore able to handle these on-chain liquidations. Well, we wouldn’t have been in this mess in the first place but let’s not go there. So the developers decided to hold a dow vote that would have taken over the wales account and liquidated that soul in an otc trade.
Just think about how crazy that proposal is it goes against the very ethos of defy and to make an already unpleasant situation even worse the sole end users were only given six hours in which to vote.
The solend vote ended up passing but it also emerged that one user worth 700k made up 90 of that vote and that my friends are called centralization. This is not intended as an attack on soland the team was in an incredibly difficult position and I for one wouldn’t want to be in their shoes. Many in the community questioned what this vote could mean for dad’s Solana and for defy as a whole now
Here is a thread on people’s degen it’s pretty insightful as to the impact that this vote could have on people’s confidence in defy. Now quite understandably the rest of the crypto community was also up in arms and so great was the backlash that the solen team decided to backtrack. So they then pushed another proposal that would have invalidated the vote on the previous proposal it would also increase the voting time to one day.
700 k users who voted in round one then came out and stated the reason for their initial vote before the second round of voting. He stated quote I don’t care about crypto Twitter hate if that means salvaging 120 million dollars of the retail dollar instead of holding up defy ethos for some whale that’s degeneratively gambling nine-figure positions.
Governance proposal sln d2 passed with a 99% vote but this of course raises a whole bunch of other questions about dows and governors. How final can we assume future votes to be if they can just be invalidated if the outcome brings a backlash. So in one bit of good news, the Solent team has thankfully been able to get hold of the whale in question and be able to talk with them and come up with a solution to spread the risk.
For example, 25 million dollars of the debt has now been moved to mango markets another Solana dex. Shortly after this, a third yes third governance proposal was voted on now this would impose a per account borrow limit of 50 million dollars among a few other things as well.
So while it appears that a crisis has kind of been averted we have to ask ourselves what this episode means for defy and decentralized governance in general. Because there’s no denying that this is a terrible look it’s been roundly criticized and has further sapped confidence in a sector that’s already under enough strain.
Now I certainly don’t envy the solen team having to make such a consequential decision and under such circumstances. Sometimes in life, you have to decide between two well really shitty outcomes both stink but it’s a choice between which stinks the least.
so this lamentable saga will deservedly raise questions as to how faith in decentralized governance can be restored we also need to ask tough questions about the designs of these d protocols because yes the solen team was put in an impossible position. But I mean should it even be possible for one whale to take on so much risk that it jeopardizes other users’ funds.
Frankly defy is not going to catch on if some gen can borrow millions of dollars and risk leaving others out of pocket when the trade goes sour. Good luck persuading the man or woman in the street to put their money in a protocol that allows that kind of thing to happen and how can decentralization be implemented while mitigating these sorts of risks. There are no easy answers to these questions and it shows that defy has a very long way to go and a lot of building to do before it can fulfill its potential. It’s just as well bear markets are the perfect opportunity for work of this kind to get done.