What is decentralization? Solend Approves Takeover of Whale Wallets to Avoid Implosion

The decentralized finance (DeFi) space came under renewed scrutiny on Sunday as DeFi protocol Solend came up with an interim governance proposal related to a whale wallet at risk of liquidation.

The proposal, called "SLND1: Mitigating Whale Risk," was launched abruptly and unannounced on Sunday, with the vote ending with 97 percent support. The scandal follows last week's sudden layoffs at Coinbase and BlockFi and the failed liquidation of Three Arrows Capital. Aside from the melee of unexpected volatility and market sell-offs, the spur-of-the-moment changes by so-called decentralized autonomous organizations (DAOs) show that crypto isn’t as “decentralized” as users think.

Details of the proposal include the whale's wallet address and more in-depth information on why this account is causing problems for Solend. Part of the main problem is that large accounts are facing liquidation, which will put pressure on Solend and its users.

According to the proposal, “If SOL falls to $22.30, the whale’s account will be able to liquidate up to 20% of the borrowed ($21 million).” The purpose of the proposal is to control the whale’s account and liquidate it through over-the-counter (OTC).

Twitter, as usual, immediately fought back. Points of contention include the damage the move might do to DeFi's overall image. Controlling one of Solend's wallets meant that the fundamentals of DeFi were called into question. The move also casts a stain on Solend's ability to manage its debt.

1) Solend labs is a bad precedent in DeFi. They propose to take over user wallets so that liquidations can be performed over-the-counter. This is a bad idea for the following reasons:

— Høus (@0xHous) June 19, 2022

As pointed out by Ava Labs founder and CEO Emin Gün Sirer, if the price of Solana (SOL) drops too low, other consequences of this move could include on-chain transactions on the decentralized exchange (DEX) ledger. liquidation. Perhaps, multiple cracks in the crypto ecosystem are starting to be exposed through hastily made, forced and manipulated decisions. Freewheeling layoffs and hacking into DeFi wallets are far from the sacred ideals of crypto’s decentralized culture, and these moves could bring further criticism and ridicule to the industry.