Solend is a decentralized lending platform based on the Solana blockchain. Similar to other protocols of this type, investors can either borrow money by posting collateral or lend it out at interest. In addition to various stablecoins, Solend also supports various tokens.
As usual for many DeFi applications, Solend is managed via a DAO, which also allows in-depth changes to be made. Anyone holding Solend's native token is entitled to vote within this governance process. Recently there was a momentous vote, which should save Solana and its DeFi ecosystem from a juicy crash.
Because while the overall market is being brought close to total collapse by crypto hedge funds and lenders like Celsius, the next risk is building at Solend.
Liquidation could cause chaos
The reason for the first vote was the fact that a heavyweight market participant was about to be liquidated. He had deposited around 5.7 million SOL and received $108 million in stablecoins in return. However, because it would be at least partially liquidated from a price of US$ 22.30 per SOL, a crisis would already ensue.
If the Solana price should slip to this level, there would be an on-chain liquidation of up to 1.14 million SOL and thus probably a crash that would have consequences beyond Solend. The total amount represents 95% of all deposits in SOL that have been deposited on Solend. At the same time, all other users cannot withdraw funds in USDC due to lack of reserves.
The fear is that if Solana is liquidated by the protocol, it will once again be stalled by a flood of transactions and that the Solana price could also collapse, which in turn could lead to cascading liquidations and an outright crash.
Criticism leads to revision
However, the decision to intervene in the market and gently close the massive position to avoid the worst did not go down well. The criticism came from across the DeFi space because it arguably violates any ethos associated with the basic idea of decentralized financial systems.
From a legal point of view, it is also unclear whether a vote can simply be put into someone else's pocket. In the end, due to the massive pressure, there was a second vote and this not only revised the first, but should also serve to extend the voting process and find another solution.
The Solend team currently sees more scope. At the time of writing, Solana is trading at $33.40, so it has gained some ground. One can only hope that there will not be another sell-off, because as things stand at present, the worst fears could come true and Solana might face a huge price collapse.
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