As is traditional, let’s start with an explanation. As it says on the project website, Solend is a “standalone interest-bearing lending platform based on the Solana network”. It allows you to earn interest in exchange for loans made in crypto, as well as to lend coins against collateral. The platform supports 46 crypto-assets and has 16 pools.

Solend project homepage

As of today, users of the platform have borrowed the equivalent of $480 million, while the equivalent of $196 million has been lent to Solend.

The volume of assets available thanks to the Solend platform


So we are essentially talking about a counterpart to the already familiar Celsius platform, which blocked coin withdrawals for users last week. Solend, meanwhile, runs on the modern Solana blockchain, which scales well, handles thousands of transactions per second and has low fees at that.

What’s going on with Solend

So, what’s the problem? The spotlight is on a large investor who has put 5.7 million SOL equivalent of $170 million on the platform, and has borrowed $108 million worth of USDC and USDT staples.


Note that every cryptocurrency loan must be accompanied by a pledge in the form of cryptocurrencies and fully secured by them. In this way, the platform insures itself against possible debts and financial collapse in case of coins collapse. In other words, if the situation on the coin market becomes critical, the company will simply sell the investor's position, i.e. forcibly liquidate it.

The asset price level at which liquidation will occur is known to the user. As the market deteriorates, the user can lower that level by increasing the pledge: the higher the pledge amount from the user, the lower the level for the crypto platform at which it will face financial difficulties.

And why should investors take crypto at all, if they have the money? Why not just buy the coins? For one thing, such a transaction would allow them to maintain their own position and use other coins. In this case, the investor is holding millions of SOL, in whose future prospects he is certain, but he can also interact with stakes, which due to lack of volatility are extremely convenient to use.

Secondly, in the case of a crypto-loan, receiving other coins is not a purchase, which means it does not have to be reported to the tax authorities. Accordingly, it is easier to pledge your own coins and get another crypto-asset to work with. Especially since everything is decentralised and fast.

However, the current case was an exception. The fact is that the recipient of the large loan did not react in any way to the decline of Solana (SOL), on which the fate of his position and the risk of possible liquidation directly depended. He did not carry out transactions with his own address for twelve days, which was an additional cause for concern for users. To illustrate, here is a graph of the value of SOL over the last ninety days. The price has fallen by 28 per cent in just one month, which is broadly in line with what is happening in the market.

The graph of the Solana (SOL) price in the last ninety days

As we have already mentioned, the “whale” did not change its own position, i.e. it did not increase the collateral of the loan. And if the SOL had fallen to $22.3, the original position of 5.7 million SOL would have been sold at the market rate.

This would naturally have had a bad effect on the cryptocurrency’s exchange rate, an idea that Solend platform users did not like. Consequently, they tried to get in touch with the owner of the position, whose identity is allegedly known to some in the blockchain community. Attempts failed, so they decided to take more drastic action.


In other words, investors were scared of liquidating a large position and selling SOL at the market rate on the exchange. In theory, this would have collapsed the cryptocurrency very noticeably and would have affected investors and led to liquidation of their positions, i.e., loss of money. And the likelihood of that happening was enough to make them act - albeit in a very strange way.

In response to what is happening, the Solend community has published a proposal for a decentralised autonomous project organisation, i.e. a DAO, which votes on various proposals and determines the development vector of the platform. It – titled “SLND1: Mitigate Risk From Whale” or “SLND1: Mitigate Risk From Whale” – was about taking control of a major investor’s account to sell SOL coins via OTC deals, that is, directly with buyers and without exchanges.

Here’s a relevant quote from the proposal, cited by Cointelegraph.

If SOL falls to $22.3, the whale’s account would be suitable for liquidation by 20 percent, i.e. $21 million. The proposal aims to gain control of the user’s account and liquidate its position through OTC transactions.

Details of Solend’s first DAO offer


That is, in effect, users have decided to use someone else's money against the owner's will at their own discretion and for their own gain. Naturally, this falls completely outside the framework of decentralisation, which is the main hallmark of digital assets.

Despite the absurdity of the idea, it was approved by DAO representatives. 97.5 per cent of all votes were in favour, depending on the amount of havernance tokens each user has.

Results of the vote on the first DAO Solend proposal

One of the votes held the equivalent of 700 thousand dollars worth of tokens, which is 90 percent of the votes at the time of the procedure. That is, the fate of hundreds of millions of dollars was essentially decided by one person, although the majority did support it.

Share of the largest vote in the first DAO Solend vote


And the largest vote did not belong to the developers of the Solend project. Proofs of this are shown in this thread.

The DAO project’s decision was the occasion for harsh criticism from the cryptocurrency community. Here’s a quote from a prominent member of the Bitcoin community under the nickname Hous.

First of all, this will set a bad precedent for the decentralised finance industry. Allowing a company to take over a user’s wallet to liquidate their position would go against the principles of decentralisation and self-storage of assets on which the DeFi niche is built.
It would also be proof of Solend’s terrible risk management. If they can’t handle their own debts, how can people trust them with their money?

Avalanche blockchain project creator Emin Gun Sirer has also criticised what is happening. After briefly describing what’s happening, he ended the thread with this quote

Congratulations, gentlemen of Solend. You’ve just reinvented the niche of traditional finance, but with more required action and more frequent and unpredictable interruptions [in the works].

Avalanche creator Emin Gun Sirer

Solana creator Anatoly Yakovenko has also responded to the situation. He responded to criticism from Bitcoin fan Robert Salvador, who called SOL “not hard money” given the situation. Anatoly didn’t take the criticism – which makes sense in general.

How is Solana’s Tier 1 network related to Solend’s DAO protocol structure?

In the end, the criticism prompted Solend representatives to submit a new proposal that reverses the decision of the former. The project announced it on Twitter this morning.

The users of the proposal directly proposed to cancel SLND1 and increase the time for voting, in order to avoid similar problems in the future.

Details of the second proposal from the DAO-community Solend

In this case the users supported the initiative. Obviously, here it was about saving the reputation of the project, which was not initially clear for some reason. Be that as it may, the decision was made, so no one will pry into someone else’s purse. The vote was 99.8 percent in favour.

Results of the vote on the second DAO Solend proposal


What conclusions can be drawn from this situation? First of all, it is good that this incident was so high-profile and was received extremely harshly by the cryptocurrency community. Had it not been the case, such platforms would surely have been able to act in this way in the future for their own benefit - which is a clear reason to avoid them.

We believe that decentralisation was not damaged in the end, but there was not much time left before irreparable damage was done. I hope that in future it will not even come to discussing such stupid ideas - let alone voting on them and implementing them.

What do you think of the situation? Share your opinion in our millionaire cryptochat.