On Sunday, the decentralized finance (DeFi) sector received scrutiny again after DeFi protocol Solend come up with a spur-of-the-moment governance proposal related to among the whale wallets vulnerable to liquidation.
The proposal, dubbed “SLND1 : Mitigate Risk From Whale,” was abruptly launched on Sunday without announcement and also the election closed having a 97% approval rating. The scandal occurs the heels of last week’s sudden layoffs from Coinbase and BlockFi, and also the liquidation debacle of Three Arrows Capital. Adding towards the melee of unpredicted volatility and market sell-offs, the spur-of-the-moment alterations of the supposed decentralized autonomous organization, or DAO, reveal that crypto isn’t as “decentralized” since it’s users might have thought.
Information on the proposal range from the whale’s wallet address and much deeper information regarding why this account was causing issues for Solend. Area of the primary concern is the big account is facing liquidation which may place a stress on Solend and it is users.
Based on the proposal, “If SOL drops to $22.30, the whale’s account becomes liquidatable for approximately 20% of the borrows ($21M).” The purpose of the proposal would be to seize control from the whale’s account and conduct the liquidation with an over-the-counter (OTC) transaction.
Immediate kickback from Twitter ensued as always. Arguments range from the damage this move might cause towards the overall picture of DeFi. Managing certainly one of Solend’s wallets means the essential concepts of DeFi fall under question. The move also leaves a stain on Solend’s capability to manage its debt.
1) Solend labs is really a bad precedent in DeFi. They’re proposing to consider over user wallet therefore the liquidation could be performed via OTC. This can be a bad idea for many reasons:
— Høus (@0xHous) June 19, 2022
As pointed out above by Emin Gün Sirer, founder and Chief executive officer of Ava Labs, additional ramifications out of this move could include cascading liquidations over the decentralized exchange (DEX) book when the cost of Solana (SOL) drops lacking.
What on the planet is that this. https://t.co/OQZGLgu2jC
— Emin Gün Sirer (@el33th4xor) June 19, 2022
Possibly, the multiple cracks within the crypto ecosystem are starting to show themselves through rushed, forced and manipulated decisions produced in haste. At-whim layoffs and entering DeFi wallets is way in the sacred ideas underlining crypto’s culture of decentralization and the like moves will probably bring further critique and ridicule towards the sector.
This can be a developing story which is updated as increasing numbers of information opens up.