Decentralized protocol for lending Solana votes to take control of whale's account

Now that strain is being placed on the cryptocurrency system, we're finding out which products and ideas crack.

The solana ecosystem is getting a major black eye today after a vote to take control of a single large wallet that was in danger of liquidation.

The problems relate back to lending within the crypto space and the eye-popping yields that were available. The vote related to the the single largest user on Solend, who had deposited 5.7M SOL, worth $170 million at the time.

About 20% of the position would be liquidated if SOL fell to $22.30. It traded as low as $27.22 yesterday.

The vote was to grant emergency powers to Solend Labs to take over the account if it fell below that level to liquidate over the counter in a more-orderly way.

The proposal, which passed was explained with:

"It'd be difficult for the market to absorb such an impact since liquidators generally market sell on DEXes. In the worst case, Solend could end up with bad debt. This could cause chaos, putting a strain on the Solana network. Liquidators would be especially active and spamming the liquidate function, which has been known to be a factor causing Solana to go down in the past. Due to concerns about risk, many users have withdrawn, causing USDC and USDT utilization in the Main Pool to spike to 100%. This means depositors can't withdraw, and positions collateralized by USDC or USDT can't be liquidated."

After the vote won, with 97.5% supporting, Solana recovered to $33.12. However the vote was overwhelmingly dominated by a single wallet.

At the same time, many argue this sets a bad precedent for 'decentralized' finance. This is a common sentiment:

1) Solend labs is a bad precedent in DeFi. They are proposing to take over user wallet so the liquidation can be executed via OTC. This is a bad idea for several reasons: 🧵

— Høus (@0xHous) June 19, 2022

In any case, going forward there is a bit of a target on the $22.30 level now. To be clear, this is a lending protocol using solana, not the crypto itself. But it's increasingly clear that the high yields in the crypto space are a ponzi and accident waiting to happen.

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