On the 18th of June, it was reported that a certain whale on the Solana network faced the risk of liquidation. The whale address borrowed $108 million worth of USDC and USDT while depositing $170 million worth of SOL as collateral.
The transaction was done on Solend, the largest Solana DeFi platform, and the amount borrowed was worth more than half the funds of all other borrowers combined. However, as the prices of crypto assets tanked, the whale risked losing a huge portion of his funds.
Solana traded as low as $27 on Friday, with the Whale’s liquidation price being around $22. Notably, though, Solend has a liquidation penalty of 20%, and liquidation on the DeFi protocol would have been in stages.
Solend Labs Requests for an Emergency Control
The expected liquidation caused a lot of panics, and a call was made for the whale’s funds to be handled by Solend. The governing body of the Solana ecosystem was to vote for or against a transfer of emergency power to Solend so that the trade could be handled over the counter.
The proposal was made to prevent a further crash in the price of SOL, as an on-chain liquidation of millions of dollars would drive SOL’s price further down.
The governing members voted in support of a temporary transfer of control. One address, in particular, accounted for 90% of the voting weight and supported Solend Labs’ proposition. This attracted lots of criticism to the SOL network, as crypto fans question its decentralized framework.
The saga also stirred proponents of the proof-of-work consensus algorithm to further criticize the proof-of-stake consensus. Although the PoS consensus is meant to achieve decentralization, activities on some protocols based on this model have not reflected actual decentralization.
Amidst the initial panic, crypto prices recovered from their lows at weekend. Solana token (SOL) which traded below $30 on Friday, now trades above $35. The liquidation scare has been temporarily avoided, and Solend Labs now have the power to minimize possible damages if the price of SOL tanks again.