[raiders72001]

SLND1: Mitigate Risk From Whale

[COLOR=var(--green)]Succeeded


[/COLOR]
[COLOR=var(--fgd-1)]Dear Solend community,
[COLOR=var(--fgd-1)]As you may know, the largest user on Solend (3oSE9CtGMQeAdtkm2U3ENhEpkFMfvrckJMA8QwV suRbE) has an extremely large margin position that is putting Solend protocol and its users at risk. Here are details about the user at the time of writing:[/COLOR]

• 5.7M SOL deposited ($170M)
• 108M USDC and USDT borrowed
• 25% of TVL
• 95% of SOL deposits (Main Pool)
• 88% of USDC borrows (Main Pool)
• A liquidation price of $22.30
• The last on-chain activity from the whale was 12 days ago

[COLOR=var(--fgd-1)]This is causing issues on the platform:[/COLOR]
[COLOR=var(--fgd-1)]If SOL drops to $22.30, the whale's account becomes liquidatable for up to 20% of their borrows (~$21M). 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 Due to concerns about risk, many users have withdrawn, causing USDC and USDT utilization in the Main Pool to spike to 100%.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.[/COLOR]
What We've Tried

• Since June 13, we've attempted to get in touch with the whale via our networks and publicly through Twitter.
• Sent the whale an on-chain message and posted about it on Twitter for amplification.
• USDC and USDT borrow rates have automatically adjusted to their max APY of >60% and >600% for hours, according to the dynamic interest rate model.
• Been in contact with market makers to explore options for ensuring the liquidation happens gracefully (OTC deal, placing bids on DEXes and hedging elsewhere).
• Had discussions with concentrated liquidity AMM protocols to explore incentivizing liquidity at critical levels so liquidation can happen gracefully.

[COLOR=var(--fgd-1)]Despite our efforts, we've been unable to get the whale to reduce their risk, or even get in contact with them. With the way things are trending with the whale's unresponsiveness, it's clear action must be taken to mitigate risk.[/COLOR]
Options

[COLOR=var(--fgd-1)]After much thought, deliberation, and conversations among the team, investors, and users, here are our thoughts.[/COLOR]

• We shouldn't do nothing. At this size, the whale will always present a systemic risk to Solend and its users. They're showing no signs of action, and it seems inevitable that they'll eventually allow themselves to be liquidated.
• Letting a liquidation of this size to happen on-chain is extremely risky. DEX liquidity isn't deep enough to handle a sale of this size and could cause cascading effects. Additionally, liquidators will be incentivized to spam the network in an effort to win very lucrative liquidations. This has been known to cause load issues for Solana in the past which would exacerbate the problems at hand.

[COLOR=var(--fgd-1)]Any action we take (including inaction) has a set of trade offs to consider. There is no perfect solution. With that in mind, the action we believe would result in the best outcome is as follows:[/COLOR]

• Enact special margin requirements for large whales that represent over 20% of borrows. If a user's borrows amount to over 20% of all borrows for the Main Pool, a special liquidation threshold of 35% is required. This policy will go into effect upon approval of the proposal.
• Grant emergency power to Solend Labs to temporarily take over the whale's account so the liquidation can be executed OTC and avoid pushing Solana to its limits. This would be done via a smart contract upgrade. Emergency powers will be revoked once the whale's account reaches a safe level.

Vote

[COLOR=var(--fgd-1)]Vote Yes: Enact special margin requirements for large whales that represent over 20% of borrows and grant emergency power to Solend Labs to temporarily take over the whale's account so the liquidation can be executed OTC.[/COLOR]
[COLOR=var(--fgd-1)]Vote No: Do nothing.[/COLOR]
[COLOR=var(--fgd-1)]We're extremely thankful for your support.[/COLOR]
[COLOR=var(--fgd-1)]Yours truly,[/COLOR]

[/COLOR]
[COLOR=var(--fgd-1)]Solend Team[/COLOR]

https://realms.today/dao/7sf3tcWm58v...DtVFgJD8kYChJ4

[raiders72001]

Users of Solana-based borrowing and lending service Solend voted Sunday to force a takeover of the protocol's largest account: a "whale" whose "extremely large margin position" was getting, according to Solend contributors, dangerously close to a catastrophic on-chain liquidation cliff.The unprecedented governance vote, Solend's first, will grant Solend Labs "emergency powers" to liquidate the whale's vulnerable assets (around $20 million in SOL) via over-the-counter (OTC) trades instead of decentralized exchanges – where decentralized finance (DeFi) liquidations usually occur – if the price of SOL drops too low.


Solend Labs said on-chain liquidation of the whale's position "could cause chaos" in Solana's DeFi markets. Doing so over an OTC service would likely avoid such an outcome. But it also usurps entirely the smart contract–coded protocol Solend programmatically follows for every other borrower liquidation.






Proponents of intervention argued the Solend whale was no typical user. The account had parked 5.7 million SOL onto Solend, or over 95% of the pool's deposits. Against that, it had borrowed $108 million in stablecoins – far more than anyone else.


If the liquidation price of $22.30 SOL hit, it would be liable for around $20 million. SOL is currently trading at $32.27.


"Despite our efforts, we've been unable to get the whale to reduce their risk, or even get in contact with them," the proposal said. "With the way things are trending with the whale's unresponsiveness, it's clear action must be taken to mitigate risk."


The proposal asked token holders to yea or nay the following:


Vote Yes: Enact special margin requirements for large whales that represent over 20% of borrows and grant emergency power to Solend Labs to temporarily take over the whale's account so the liquidation can be executed OTC.
Vote No: Do nothing.







Solend governance token-holders who participated voted yea with 97.5% of the vote. The proposal barely cleared a 1% quorum in the affirmative with 1.13% share.


A single yea voter made all the difference: their account was the only reason the proposal cleared the 1% mark.

https://www.coindesk.com/tech/2022/0...idation-chaos/

[DiggityDaggityDo]

Theres gonna be a pissed off whale

[raiders72001]

Emin Gün Sirer

So someone had the bright idea that, instead of doing what the contract says, they will **take over the position of the whale, and liquidate these coins manually through an OTC desk**. This is unprecedented.

............

[raiders72001]

https://twitter.com/el33th4xor/statu...38566623678465- The 'DAO' was spun up less than 24-hours ago- 98% of the yes votes came from 1 unidentified whale wallet- They gave their users LESS than 6-hours to vote- The voting site was DOWN for 3-hours of the vote

[PD77]

It’s gonna get a lot worse than this once the shit really hits the fan. De-Fi is actually the Wild West. Yeah banks aren’t your friends but decentralized finance could be your worst enemy.

[DiggityDaggityDo]

https://t.co/g6XILvFXOR

— Watcher.Guru (@WatcherGuru) June 20, 2022

[Optional]

Sounds like a situation they should have planned for.

And legally dodgy?

[raiders72001]

Sounds like a situation they should have planned for.

And legally dodgy?

I agree that it would have been a legal mess. I'm guessing the whale contacted them.

[shadymcgrady]

Is this the beginning of the end for Solana? There will be alot of upset venture capitalists if so

[Arky]

Adoption can't happen fast enough. Crypto is still growing - I hear more and more about institutions and retail adopting crypto as a payment system but there is still a long way to go. At some point, if allowed, crypto should become bigger than any whale, group of whales or institutional money with bad intent. What is not needed is the billionaire control freak group to get in and wreak havoc or to turn it into the corrupt system they are coming from.

Crypto is about freedom from the system. Some people don't like that.

[raiders72001]

Is this the beginning of the end for Solana? There will be alot of upset venture capitalists if so

I hope it's the end. Totally centralized and always down. Unfortunately so much money is being thrown at it that it looks like it's not going away.