Dane Lund Profile picture
Jun 19 16 tweets 5 min read
Early today, Solend announced that it would hold its first DAO vote to seek emergency approval to seize the assets of its largest user.

Within hours, Solend claimed it had approval.

tldr: Solend's actions expose a shortcoming of a centralized team, not that of a DAOs. 🧵

Solend promotes itself as "the autonomous interest rate machine for lending on Solana."

Solend's largest user held a risky position. The wallet had deposited 5.7mm Sol and borrowed 108mm in stablecoins. Sol liquidation price of $22.3 (~31% drop from current).
Solend's core team attempted to reach the owner of the wallet to encourage them to reduce risk beginning on June 13.

Yesterday, the team attempted to reach the owner via on-chain message (at 9:35am ET). The message gave the owner 24 hours to respond.

~19 hours later, Solend announced its first governance proposal for its "DAO".

The proposal sought to:

1. Increase the margin threshold for accounts > 20% of pool borrows; and

2. Take control of the owner's wallet to initiate OTC liquidation.

The proposal makes no reference to a timeline for voting or a quorum.

Within the first 2 hours, the governance portal was not fully accessible. (tinyurl.com/24bha265).

6 hours after announcing the proposal, Solend declared it passed (tinyurl.com/mrxrmrte).
1.16 million tokens voted. One wallet, accounting for 1.04 million voted in favor (~1.01% of token supply).

Detail from the forum shows that the quorum was set at 1% of supply and had the 1% wallet not voted, a quorum would not have been established. (tinyurl.com/mtw72v7u)
Nothing in Solend's DAO documentation discusses voting, nor does their governance profile on Realm detail procedural rules for the DAO.
Solend's Discord is not clear on the scope or timing of governance. As recent as June 4, a Solend community / BD team member suggested that "steps towards governance" would be taken in the future.

I was not able to find a mention of a plan to launch governance in the near term.
In truth, it appears there is nothing that resembles a DAO in the current design of Solend.

In May, when a user emphasized the importance of decentralization, the same team member indicated that the decisionmaking was intentionally centralized to push for speed.
It is pretty clear that the vote today was not required, from the perspective of code, to take over the whale's wallet to implement a forced liquidation.
At first blush, Solend has a fairly robust set of disclosures on its site, including a discussion of risk factors and an audit.

What is missing is a mention of centralization risk (docs.solend.fi/getting-starte…).
If someone "locks" assets in a smart contract, their reasonable expectation would be that the contract cannot be altered to take possession of their assets.

Having a rushed governance vote does not change the reasonable expectations of a user who reads the documentation.
One question: what if the protocol had been decentralized and the DAO (rather than developer team) had full access to the administrative function that permits the "upgrade" that permits access to locked assets?
This question does not expose the flaw of DAOs, but it shows the need for clear scope of product design.

A user should be on notice that they risk having their assets seized, whether the governing body is a developer team or a DAO.
The Solend vote displays a problem with product design and communication of risks to the end user.

It would be wrong to infer that Solend is an example of DAO failure, as many of the community members expressed their dismay on Twitter and Discord.
A governance system that is developed without clear rules of engagement for the community that holds its first vote on a few hours notice is not a DAO.

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More from @lund_dane

Jun 15
Here's what I think is going on behind the scenes with Celsius.

(Caveat: not financial or legal advice, could be wrong).
When a company faces a liquidity crunch, it needs three things: lawyers, bankers, and time.

Lawyers provide options, assess liabilities, and communicate with attys for the creditors.

Bankers look for buyers + capital, model asset sales and liquidity, and determine solvency.
Above all, debtors need time. Time can clear sour market conditions and/or enable the company to develop a strategic plan. If there is any chance of recovering some equity value, the board will want to know and take steps to secure some value for equity holders.
Read 13 tweets
Jun 8
As the frenzy of coverage of the Lummis-Gillibrand bill settles, I want to highlight some of the very positive developments in the bill.
First, the bill provides a feasible path for the recognition of governance tokens to be recognized as commodities.
While I would have preferred to carve out DAO tokens altogether, as the March draft did, the current bill does not exclude voting rights from the definition of ancillary assets, which paves a path for governance tokens to become commodities.
Read 11 tweets
Jun 7
Today you will see a lot of commentary on what is in the latest draft of the Lummis-Gillibrand bill.

This thread focuses on the securities implications and discusses how the bill has changed since March.

tldr; the March bill would have been better for Web3 creators. 🧵
The gist of the bill is that it divides regulation of digital assets between the SEC and the CFTC.

The SEC is given limited oversight over certain digital assets, called "ancillary assets," but otherwise leaves the SEC's jurisdiction over investment contracts intact.
So what are ancillary assets?

They are "intangible, fungible asset[s] sold or otherwise provided to a person in connection with the purchase and sale of a security".

If a digital asset qualifies as an ancillary asset, it will be considered a "commodity."
Read 7 tweets
Jun 5
Will the Lummis bill be a BTC maxi coup?

I don't think so. Let's follow the incentives.
Sen. Lummis is the Senator from Wyoming. Wyoming proudly pioneered the DAO LLC and is lightyears ahead of other states. There were 130 active DAO LLCs in Wyoming as of Dec. 31, 2021.

Hear more from Sen. Lummis' State Policy director.

What is better than 130 DAO LLCs? 10,000+ DAO LLCs. But there is a big three-letter blocker to getting to that goal.

Read 25 tweets
May 5
"How do you find and vet a good lawyer in Web3?" I hear this question from founders repeatedly. The question evades more than founders: it stumps investors and lawyers. I have the handbook for you: mirror.xyz/0x367B4bDf414D….

Before you crack the tome, follow me on a journey. 🧵
In order to learn how to find strong representation, it is important to consider why suitable Web3 lawyers are so hard to find. There are four reasons.
First, too few lawyers have migrated to Web3 from institutional clients. Second, the most visibly talented Web3 lawyers are often oversubscribed or in-house (e.g., @RebeccaRettig1, @lex_node, @boironattorney). Third, lawyers are bad marketers. Fourth, the legal market is opaque.
Read 23 tweets
Mar 10
The next installment of the DAO governance primer covers the ideal of "flat" DAOs. Even in collectives, hierarchies emerge. Without naming or structuring the hierarchy, we give no compass to DAO members and ultimately see concentrated participation. mirror.xyz/0x367B4bDf414D…
Some highlights: an analysis of the Discord participation in collectives shows consistent exponential decay from the input of the top user to the input of the tenth user. Image
Similarly, there is a massive drop off in the number of proposals submitted by users from the top within the top five proposers. Image
Read 5 tweets

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