A leading lending platform on the Solana (SOL) blockchain says a governance proposal urging users to grant it emergency powers to potentially seize the crypto assets of its largest whale has passed.
According to the governance proposal, Solend (SLND) also sought to impose special margin requirements for whales that have borrowed more than a fifth of the amount available for lending.
“Governance proposal SLND1 has passed.
Special margin requirements for accounts that represent over 20% of borrows are now in effect.”
According to Solend, the liquidation level will now be set at 35% once a user borrows an amount that exceeds 20% of the total amount available for lending.
On the risks posed by its largest user, Solend says the whale will be given time to deleverage before the emergency powers are put into effect.
SLND1 passed with 97.5% voting yes and 2.5% voting no.
While putting out the governance proposal, Solend said the whale deposited 5.7 million Solana worth approximately $170 million, or about 95% of the SOL deposits on the main pool.
The whale then borrowed Tether (USDT) and US Dollar Coin (USDC) worth $108 million. The USDC borrowed was equivalent to 88% of the stablecoin lent out on the main pool. The whale controlled about 25% of Solend’s total value locked at the time of putting out the governance proposal.
According to Solend, if the price of Solana were to drop to the low $22.30, the whale would put the protocol and users at risk since 20% of the $108 million borrowed would have to be liquidated in a market with capacity limitations.
Per the Solana-based lending platform, the emergency powers will allow the potential liquidation of the whale’s assets to occur over the counter (OTC) rather than on a decentralized exchange.
According to Solend, liquidating the whale’s crypto assets on-chain would trigger problems for the Solana blockchain.
“Letting a liquidation of this size to happen on-chain is extremely risky. [Decentralized exchange] 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.”
Before putting out the governance proposal, Solend tried contacting the whale for nearly a week unsuccessfully.
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Featured Image: Shutterstock/theromb/Sol Invictus