Erik Weijers, a year ago

Solana app Solend uses emergency powers

A controversial move by the Solends Labs team: it had the community vote on a proposal to take over a large user's account. It goes to show that with this "decentralized" blockchain when all is said and done, you don't own your own money.

What's going on? It's about Solend, a lending app on Solana (one of Ethereum's biggest competitors) with over 1 billion in deposits. A 'whale' (owner of a large amount of SOL) had borrowed $100 million of stablecoins there with a large amount of SOL as collateral. Because the price of SOL was falling rapidly, there was a real risk that the collateral of this whale would be liquidated. This would mean that the price of SOL would crash even harder, which was obviously not in the best interest of SOL owners.

To prevent this on-chain liquidation, Solend hastily set up a DAO (Centralized Autonomous Organization). This is a way for community members to vote on a proposal. In this case, the proposal 'grant emergency power to Solend Labs to temporarily take over the whale's account so the liquidation can be executed OTC.' OTC means Over the counter, i.e. a negotiated deal. By allowing the liquidation to take place in this way, a more controlled sale could be arranged and thus, hopefully a less deep price drop. The community voted yes to the proposal.

Fierce criticism

The way the Solend team took over a user's account goes against principles of crypto, namely that power does not lie with a small team but with the users. What happens to someone's money should be laid down in programming code: code is law. Although the proposal was voted on, there was hardly any time to do so: the deadline was six hours away. Only 1% of token holders cast a vote. Hardly a solid basis to push through such a far-reaching proposal. In crypto circles, there was fierce criticism of what happened: 'Absolute Comedy, decentralized in name only', 'This is flat out wrong and you know that'.

Code is not always law

Although the current example is extreme, it is not the first time that an application that runs on a proof-of-stake blockchain, which is supposed to run autonomously, has been tampered with. That's the stakeholder way of governance. The most famous case is Ethereum's DAO, which was hacked in 2016. Ethereum's developers decided to roll back the transactions on the blockchain to the point before the block where the hack took place. This led to a fork: a new blockchain in which the bug was fixed. The Ethereum hard fork was controversial but more understandable than the Solend one: in Ethereum's case it was a bug and a hack. In the case of Solend, it's about a price drop that users would rather not see happen.

UPDATE: voting time extended

The Solend team has issued an update: the last proposal is invalidated. The voting time will be extended to 1 day and they will work on a proposal that won't involve taking over an account. They feel they have this room as the price has recovered and whale liquidation risk is smaller.

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