The Solana network’s DeFi platform Solend protocol issues a new proposal to introduce account borrow limit as Solend has been battling a liquidity issue.
Yesterday, the Solana DeFi platform DAO members voted for ‘Whale Account’ takeover whose extremely large margin position was way too close to a fatal on-chain liquidation crisis.
Few hours later, Solend invalidated the whale account takeover proposal as the first one was met with huge backlash as it was against the purpose of decentralization.
But the whale account still continues “to impose a heavy strain on Solend users” and pose risk towards Solend, so this new proposal came in.
The current proposal is to introduce a $50 million per-account borrowing limit. Any debt above this amount, regardless of collateral value, will be liquidated.
If the proposal gets approved the protocol will start by setting the per-account borrow limit at $120M dollars and progressively reduce it until it reaches $50M dollars. A $500K per hour reduction will be sought.
Then Solend will reduce the maximum liquidation closure factor from 20% to 1% for the time being. This sets a limit on how much money can be liquidated in a single transaction.
Solend also plans to reduce the liquidation penalty for SOL from 5% to 2% for a limited time. This should limit liquidation spam while still giving liquidators enough of a bonus to break even on slippage.
Token holders are asked to vote yes or no on the following:
- Yes : Introduce a per-account borrow limit of $50M, temporarily reduce the liquidation close factor to 1%, and temporarily reduce the liquidation penalty to 2%.
- No : Do nothing.
Solend is currently contacting market makers in order to improve the on-chain liquidity. They expect this to keep the impact of the DEX market to a minimum.
The latest proposal will go into effect as soon as possible if it is approved. Solend urges the users to reduce their borrow positions during this 24-hour voting period.
Solend will also contact liquidators to request that their bots be updated to reflect the changes.
At the time of writing, 100% of the votes are in favor of the proposal, with 287,198 Yes votes to be exact. The proposal is yet to surpass the 1% quorum with less than 17 hours left for the voting to end.
The crypto community was sent into a frenzy yesterday when it was revealed that a single Solend user had cast 90% of the votes, allowing the whale account takeover plan to be granted.
The voters later went on to Discord to defend their point of view. They stated that they would rather save $120M in retail dollars than hold up DeFi ethos for some whale who is degenerately gambling.
The decision to invalidate the first vote, while correct, raises another important question: what is the use of a DAO vote if the decisions are not followed?
The slight market recovery and the current SOL price of $37, are giving Solend some room to maneuver. However, if the market collapses and SOL falls below $20, there may be significant liquidation.
