• Solend Labs gets emergency powers
  • It allows the DeFi operator to intervene to prevent on-chain liquidation
  • SOL was trading up 6.59% at $32.28

Users of the Solana-based lending and borrowing service platform voted to "grant emergency power to Solend Labs to temporarily take over a whale's account" to damper liquidation risks.

The decentralized finance (DeFi) sector was under fire Sunday after Solend came up with an impulsive governance proposal in relation to one of the whale wallets on the verge of liquidation. Launched without any announcements over the weekend, the proposal titled "SLND1: Mitigate Risk From Whale" closed with a 97% approval vote.

With the unprecedented governance vote, Solend Labs now has the temporary power to liquidate the vulnerable assets of the said whale through over-the-counter trades instead of decentralized exchanges. The whale assets' value of around $20 million in SOL is apparently in the extreme large margin position, posing a threat to on-chain liquidation and causing the Solend protocol and users to be exposed in a greater risk bubble.

Cryptocurrency purchases in rubles are at a record high
Cryptocurrency purchases in rubles are at a record high AFP / Nhac NGUYEN

According to the proponents of the proposal, the whale is not an ordinary user but holds more than 95% of the pool's deposits and has parked 5.7 million SOL onto Solend. It had also borrowed $108 million in stablecoins — an amount way more than anyone else had borrowed.

If the SOL's liquidation price hits $22.30, the whale would be liable for approximately $20 million, which would make it "difficult for the market to absorb such an impact since liquidators generally market sell on DEXes," the proposal stated.

"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," the proposal explained.

"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," the proposal read.

SOL was trading up 6.59% at $32.28 with a 24-hour volume of $1,910,087,078 as of 12:18 a.m. ET on Monday, based on data from CoinMarketCap.